Skupina KD Group

The Group KD Group and KD Group d.d.
Annual Report 2009
The KD Group Annual Report 2009
Kazalo
1. INTRODUCTION ............................................................................................................................................ 3
Company profile .................................................................................................................................................... 3
The KD Group corporate structure ...................................................................................................................... 5
Activities of the Group KD Group ........................................................................................................................ 7
2. BUSINESS REPORT ..................................................................................................................................... 8
Report of the chief executive officer of KD Group d. d. ....................................................................................... 8
Report of the management board of KD Group on the review of the annual report of KD Group d.d. and the
KD Group for 2009 ............................................................................................................................................ 10
Events that characterised 2009 ......................................................................................................................... 13
Strategic orientations of the KD Group.............................................................................................................. 17
Shares, dividends and ownership structure ...................................................................................................... 19
Analysis of operations ....................................................................................................................................... 31
Capital markets in 2009 ............................................................................................................................... 31
Operations of the KD Group in 2009............................................................................................................. 33
Business operations of KD Group d.d. in 2009 ............................................................................................. 40
Internal audit ................................................................................................................................................. 45
Human resources and development ............................................................................................................. 45
Research and development .............................................................................................................................. 49
Corporate social responsibility of the Group KD Group .................................................................................... 51
3. OPERATIONS OF KD GROUP COMPANIES ............................................................................................. 54
Banking and investment fund management ...................................................................................................... 54
Banking ......................................................................................................................................................... 54
Investment fund management ...................................................................................................................... 56
Insurance .......................................................................................................................................................... 60
Real estate ........................................................................................................................................................ 67
4. FINANCIAL REPORT ............................................................................................................................... 69
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The KD Group Annual Report 2009
1. INTRODUCTION
Company profile
Parent company: KD Group, finančna družba, d. d.1
Abbreviated company name: KD Group d. d.4
Registered Office: 206 Celovška cesta, Ljubljana 1000, Slovenia
Telephone: +386 1 582 67 00
Fax: +386 1 518 41 00
E-mail: info@kd-group.com
Website: www.kd-group.com
Activity: 64.200 – Activity of holdings
Legal status: Public limited company
Company registration number: 1585126000
Tax number: 66296374
VAT identification number: SI66296374
Entry in the Company Register: District Court of Ljubljana, no. 2000/15252 dated 3 January 2001, reg. no.
1/34049/00
Share capital: EUR 98,215,756.97
Number of no-par value shares issued: 2,942,053
Number of ordinary registered shares of KDHR: 2,675,640
Number of participating preference shares of KDHP: 266,413
Date of incorporation: 3 January 2001
Financial highlights
Unit KD Group d. d. The KD Group
Operating revenue in EUR thousand 501 367,869
Net profit or loss in EUR thousand (52,827) (44,223)
Assets in EUR thousand 336,356 847,785
Equity capital in EUR thousand 162,305 151,605
Return on equity % (28.3) (25.6)
Share book value EUR 57.38 52.70
Net earnings per share EUR (20.4) (17.1)
1Initially, and when their full or abbreviated name is used, names of the companies or enterprises in the Annual Report include designation of their
organisational status such as d.d.; afterwards, these designations are omitted for more fluent reading.
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The KD Group Annual Report 2009
Management Board of KD Group d. d.2
• Matjaž Gantar, President of the Management Board
• Aleksander Sekavčnik, Deputy President of the Management Board
• Tomaž Butina, Member of the Management Board
• Sergej Racman, Member of the Management Board
• Dr. Draško Veselinovič, Member of the Management Board, CEO
• Peter Grašek, Member of the Management Board, Deputy CEO
2 Following registration in the court register as of 16 November 2009, a one-tier management system was implemented in KD Group, d.d..
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The KD Group Annual Report 2009
The KD Group corporate structure
Organisational chart at 31 December 2009
KD Fund Advisors LLC, Delaware 90,00%
KD Skladi d.o.o., Ljubljana 100,00% KD Finančna točka d.o.o., Ljubljana 50,00%
KD Investments d.o.o., Zagreb 100,00% KD Fondovi AD, Skopje 85,00%
KD Investments a.d., Beograd 100,00%
SAI KD Investments s.a., Bucharest 100,00%
KD Investments EAD, Sofia 100,00% 100,00%
KD Banka d.d., Ljubljana 100,00%
KD Upravljanje imovinom d.o.o., Zagreb 100,00%
KD Capital Management s.a., Bucharest 100,00%
KD Securities EAD, Sofia 100,00%
KD Mark d.o.o., Ljubljana 100,00%
KD Asset Management b.v., Amsterdam 100,00%
KD Finančna točka d.o.o., Zagreb 100,00%
80,10%
KD Životno osiguranje d.d., Zagreb 100,00% KD Financial point, s.r.o., Bratislava 100,00%
KD Life CJSC, Kiev 100,00% 19,90%
KD Finančna točka d.o.o., Ljubljana 50,00% KD Financial point, s.r.l., Bucharest 100,00%
KD Življenje d.d., Ljubljana 100,00%
ZAP d.o.o., Murska Sobota 100,00% KD Financial point EOOD, Bulgaria 100,00%
KD Group d.d.
KD Life Asigurari s.a., Bucharest 100,00%
Vitavizia d.o.o., Ljubljana 100,00%
KD Život a.d., Sofia 100,00%
SC KD Fond de Pensii s.a., Bucharest 99,00%
KD Kvart d.o.o., Ljubljana 100,00%
9,00%
Adriatic Slovenica d.d., Koper 100,00% 90,82% AS Neživotno osiguranje a.d.o., Beograd 99,82%
20,00%
FM-NET d.o.o., Ljubljana 100,00% Radio Kranj d.o.o., Kranj 52,68%
9,96%
85,76% ABDS d.d., Sarajevo 95,72%
Gama Holdings b.v., Amsterdam 100,00%
ČZD Kmečki Glas d.o.o., Ljubljana 100,00%
KD Kapital d.o.o., Ljubljana 100,00% Vrtnarstvo Celje d.o.o., Celje 50,46%
VIB a.d., Banja Luka 51,00%
KD Private Equity, Beograd 100,00%
R.E. Invest d.o.o.- in liquidation, Ljubljana 100,00%
Coloseum Multiplex Holdings b.v., Amsterdam 100,00%
Firsthouse Investments ltd., Limassol 100,00% Manta Marine Ventures ltd, BVI 100,00%
Fontes Group DOO, Beograd 100,00%
GEA College d.d., Ljubljana 66,57% GEA College PIC d.o.o., Ljubljana 100,00% GEA College CVŠ d.o.o., Ljubljana 100,00%
World Life Group ltd., Limassol 100,00%
OOO Sarbon Invest, Tašken 100,00% OOO Kredo Group, Tašken 99,97%
Ownership shares in companies in the KD Group represent interests held by enterprises in the KD Group.
Associates
Company Ownership stake (in %)
Concorde PS, d. o. o., Šenčur 50.00
Deželna banka Slovenije d. d., Ljubljana 35.62
KD ID d. d., Ljubljana 22.063
KD Private Equity Fund b. v., Amsterdam – in
liquidation 48.21
Nama d. d., Ljubljana 48.46
Seaway Group d. o. o., Bled 45.00
Seaway Skupina d.o.o., Ljubljana 48.65
Seaway Technologies s.r.l., Monfalcone 48.65
Semenarna Ljubljana d. d., Ljubljana 29.90
Zellner Holdings Limited, Limassol 48.65
Žicnice Vogel Bohinj d.d., Bohinjsko jezero 21.76
3 Jointly with the parent company, KD d. d.
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The KD Group Annual Report 2009
• The Group KD Group corporate structure
The KD Group
Property Life insurance Health insurance Financial services Banking Capital investments
insurance and real estater
KD Življenje, Ljubljana Adriatic Slovenica, KD Group, Ljubljana KD Banka, Ljubljana* KD Kapital, Ljubljana
Adriatic Slovenica, KD Životno osiguranje, Koper KD Capital management,
Koper Zagreb - Health insurance KD Skladi, Ljubljana Bucharest KD Kvart, Ljubljana
- property insurance KD Life, Sofia KD Investments, Zagreb KD Securities, Sofia
KD Life Asigurari, KD Investments, Beograd KD Upravljanje Skupina Gea College,
AS Neživotno osiguranje, Bucharest KD Fondovi, Skopje imovinom, Zagreb Ljubljana
Beograd KD Life, Kiev KD Investments, Sofia
SAI KD Investments, ČZD Kmečki Glas,
Adriatic Slovenica, Bucharest Ljubljana
Koper KD Fund Advisors, FM-NET, Ljubljana
– life insurance Fontes Group, Beograd
Delaware
SC KD Fond de Pensii, Radio Kranj, Kranj
Bucharest ABDS, Sarajevo R.E. Invest – in
ZAP, Murska Sobota Coloseum Multiplex liquidation, Ljubljana
World Life Group, Holdings, Amsterdam Vrtnarstvo Celje, Celje
Limassol Firsthouse Investments,
Vitavizia, Ljubljana Limassol
Gama Holdings, Amsterdam
KD Finančna točka,
KD Asset management,
Ljubljana
Amsterdam
KD Finančna točka,
KD Private Equity, Beograd
Bucharest
Kredo Group, Taškent
KD Finančna točka,
Manta Marine Ventures, BVI
Bratislava
VIB, Banja Luka
KD Finančna točka,
Sarbon Invest, Taškent
Zagreb
KD Finančna točka, Sofia
KD Mark, Ljubljana
* KD Banka began operating on 2 March 2009 following the transformation and expansion of operations of the stockbrokerage company KD BPD, borznosposredniška družba,
d.o.o.
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The KD Group Annual Report 2009
Activities of the Group KD Group
The Group KD Group, which celebrated its 15th anniversary in 2009, is one of the largest business groups in Slovenia. The
Group's principal activities are:
• insurance;
• investment fund management;
• banking and;
• capital investments and real estate.
The principal business activity of the parent company KD Group d. d. is the management of listed and non-listed investments
and the generation of financial returns in accordance with the structure of its portfolio. The parent company makes decisions
regarding all the KD Group’s major strategic investments.
Insurance
The KD Group's insurance business comprises life, property and health insurance. It has two public limited companies in
Slovenia: KD Življenje, a life insurer, and Adriatic Slovenica, a universal insurance company that markets life insurance and
property insurance, including health insurance. In accordance with the strategy of expanding the KD Group activities to
foreign markets, in the previous year insurance companies within the Group operated on the following foreign markets:
Ukraine, Croatia, Romania and Bulgaria, as well as in Slovakia through a branch office. The Group is marketing property
insurance in Serbia through property insurance company AS neživotno osiguranje a.d.o. Beograd, Serbia.
The key strategic orientations of the KD Group in the field of insurance are based primarily on operating growth on the local
and foreign markets and on a comprehensive range of financial services provided through a variety of sales networks.
In Slovenia, we further reinforced and consolidated existing sales channels.
Investment fund management
Five investment management companies within the KD Group manage a total of 27 mutual funds and two investment
companies in the South-eastern region of Europe. KD Skladi, Ljubljana, currently the largest management company in
Slovenia, is the leading investment fund management company in the Group. The company manages the umbrella fund “KD
Krovni sklad” with 17 sub funds and KD ID, delniška investicijska družba, d. d. as well as assets of the well-informed
investors. Currently, four management companies operate outside the Slovenian borders who jointly manage eleven
investment funds: four mutual funds in Croatia, two in Romania, two mutual funds and one investment company in Bulgaria
and two mutual funds in Macedonia.
Banking
In 2009, the KD Group began operating on the banking market following a transformation of KD BPD from a limited liability
company into a public limited company on 2 March 2009 and assuming a new name of KD Banka.
Initially, KD Banka concentrated on private, personal and investment banking services, including stockbrokerage, individual
asset management and corporate finance services. However, in order to adjust to the changed economic conditions, KD
Banka decided for early implementation of the basic corporate banking services, while at the same time it was developing
services for the mass market, which began to be marketed through the sales network of branch offices by KD Finančna točka
in February 2010.
In addition to KD Banka operating in Slovenia, other companies also operated in the banking division in 2009 namely in
Croatia, Bulgaria and Romania.
Capital investments and real estate
The Group’s capital investments are managed by the KD Kapital. This division includes real estate services, publishing, and
managing of closed investment funds in South Eastern Europe (Bosnia and Herzegovina and Republika Srpska).
In the Group KD Group, real estate services are provided by KD Kvart, a young, dynamic and ambitious company, whose
core activity is investment engineering in the field of real estate. The strategy of the real estate division is to search for new
opportunities for the development of real estate projects, real estate sale, and management of real estate owned by the
Group KD Group.
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The KD Group Annual Report 2009
2. BUSINESS REPORT
REPORT OF THE CHIEF EXECUTIVE OFFICER OF KD GROUP D. D.
Global financial crisis provided an incentive for reorganisation of the Group KD Group and implementation of measures for
business rationalisation. These activities began in 2009 and will continue 2010. The loss of EUR 44 million incurred by the
Group KD Group in 2009 is to a large extent the consequence of poor performances of companies operating abroad and
also a result of global financial crisis. The Group KD Group has already adopted strategic decisions concerning companies
operating abroad in terms of which markets should be pursued further and from which to withdraw. The relevant measures
have already been implemented. The poorest results were recorded by companies operating in South-eastern Europe
(Romania, Bulgaria, Ukraine, and Serbia), the region where the financial crisis impact on financial institutions was worst and
where the consequences were the largest. The major share of the loss incurred by the Group KD Group is due to the
Group's withdrawal from the South-eastern European markets in which the Group did not have the controlling interest and
where no profits were expected in the long-term. The proceeds will be used to realise the adopted strategy. Companies
operating in Slovenia are performing well and in 2009 exceeded the planned results.
The KD Group's performance in 2009 was better than in 2008, resulting in a loss of EUR 44 million. Operating revenue in
2009 reached EUR 368 million, a decrease of 6 percent compared with 2008. Decrease in the revenue is due to the disposal
of enterprises in the cinematographic division in 2008. Revenue from insurance premiums, which account for the majority of
revenue, rose by 3 percent compared with 2008. At the end of the year, total assets amounted to EUR 848 million, an
increase of 7 percent compared to 2008, whereas total capital was reduced by EUR 41 million or 21 percent compared with
2008. At the end of 2009, the Group KD Group reported EUR 152 million of capital and EUR 182 million of financial liabilities.
The majority (almost EUR 100 million) represents long-term financial liabilities maturing in 2015. I wish to stress that the
Group KD Group regularly meets its obligations concerning interest and principal repayments. We have established good
relationships with all commercial banks. In 2010, the Group KD Group is expected to generate profit of EUR 4 million, rising
to as much as EUR 11 million in 2011. The results of the first few months of 2010 confirm these trends.
The Group KD Group believes that the adopted strategic decisions provide solid basis for continued development of the
Company and the entire Group KD Group. Majority of the KD Group's revenue comes from the third largest insurance in
Slovenia, Adriatic Slovenica, the largest investment management company in Slovenia - KD Skladi, fast growing life
insurance companyKD Življenje, and KD Banka, a private bank, rounding up a comprehensive palette of financial services
provided by the Group.
Insurance
Insurance companies within the Group KD Group were in 2009 involved in intense expansion and improvement of their range
of products and services as well as development of new, specialised insurance products aimed at individual target groups.
Market share of 12.56 percent recorded in 2009, makes Adriatic Slovenica the third largest insurance company in Slovenia.
In terms of property insurance, the insurance company held a 17.01 percent share in 2009, 23.9 percent share in health
insurance places the company in the second place on the health insurance market, while the company holds the leading
position on the market of above-standard health insurance. Due to its consolidated market network and modern insurance
products supplemented by first-class assistance services, the insurance company has set even more ambitious goals for the
next financial year.
Life insurance company KD Življenje is the second largest life insurance providers in Slovenia and in spite of unstable
economic conditions at the end of 2009 it increased its market share to 14.1 percent. Slovenian life insurance market was in
2009 marked primarily by the financial crisis reflected in an average 3.8 percent decline which was preceded by several
years of continuous growth of the life insurance sectors.
The goals for 2010 include life insurance premiums of over EUR 84 million, over 256 million premiums for property insurance
(including health insurance premiums) which translates into 3.6 percent increase in property insurance premiums and 5
percent growth in the health insurance market.
In accordance with the adopted strategic decisions, the Group KD Group will withdraw from those markets where the results
are below the expectations and will instead, concentrate on the Slovenian market.
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The KD Group Annual Report 2009
Investment fund management
KD Skladi maintained its leading position among the Slovenian management companies in terms of assets and range of
funds and at the end of 2009 it managed over EUR 421 million of assets in 17 sub funds of KD Krovni sklad and KD ID,
delniška investicijska družba.
Five management companies operate within the Group KD Group which jointly manage 27 mutual funds and two investment
companies.
By the mid 2009 conditions on the capital markets were slowly stabilizing and from March onwards we have seen increase in
share prices indices which improved the general level of investors’ optimism. Funds within the Group KD Group performed
well in terms of their return (majority recorded positive returns) and in terms of new investors. In terms of return, they
successfully competed with local and foreign competition with some of them being the leaders in individual categories. The
increased trend in the number of accession forms continued and funds recorded positive inflows. At the end of 2009 total
value of managed assets of all asset management companies in the KD Group reached EUR 449.1 million, compared to
EUR 360.6 million recorded at the end of 2008.
In 2010 we will continue with our efforts to confirm our excellence in asset management and justify investors' trust. We will
intensify our efforts for improved recognition of KD funds in order to preserve the leading position in Slovenia and consolidate
our market shares in South-eastern Europe.
Banking
2009 marked the entry of the Group KD Group in the banking sector. On 2 March 2009, following a resolution of the Bank of
Slovenia to grant licence to KD BPD for the performance of banking and financial services and resolution of the Securities
Market Agency to grant permission to KD BPD for statutory conversion from a limited liability company into a public limited
company, the company became a public limited company and assumed a new name of KD Banka. Initially, KD Banka
concentrated on private, personal and investment banking services, including stockbrokerage, individual asset management
and corporate finance services. However, in order to adjust to the changed economic conditions, KD Banka decided for early
implementation of the basic corporate banking services, while at the same time it was developing services for the mass
market, which began to be marketed through the sales network of branch offices by KD Finančna točka in February 2010.
At the end of 2009 KD Banka had more than 3,200 clients, while total value of assets held by private clients and assets in
individual management stood at EUR 51 million, and 336 million of brokerage assets.
In 2010 we intend to improve our range of banking services with new services including investment consultation, a range of
credits and savings, as well as other financial instruments. The range of services adjusted to the needs and wishes of clients
will be available through a variety of marketing channels.
2010
The basic orientation of the Group KD Group is to consolidate its position on the financial services market. In 2010 we will
continue the process of business consolidation, preserve the existing strategy concerning strategic investments, and
continue with well-thought disposal of investments which are not of strategic importance. In addition we will focus on
successful companies and support their further development.
Our mission is a satisfied customer able to choose between a comprehensive and complete range of financial services. We
are gaining new, satisfied and loyal clients who are able to find solutions to their financial issues and realise their wishes at a
single location – in the companies within the Group KD Group.
Draško Veselinovič, PhD
CEO
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The KD Group Annual Report 2009
REPORT OF THE MANAGEMENT BOARD OF KD GROUP ON THE REVIEW OF THE ANNUAL REPORT OF KD GROUP
D.D. AND THE KD GROUP FOR 2009
Dear Shareholders,
Based on authorisations and competences, laid down in the Articles of Association, the managing process and operations of
KD Group d.d. and the Group KD Group, were supervised and monitored by the Supervisory Board until 15 November 2009
and since 16 November 2009, by the Management Board in accordance with the legislation and Rules of procedures of the
Supervisory Board and the Management Board.
On 16 November 2009, members of the Supervisory Board who were again appointed at the 12th General Meeting of
Shareholders held on 6 March 2009, operated in unchanged composition as follows: Aleš Vahčič, PhD - President, Alojz
Penko – Deputy president and Bojan Sekavčnik – member.
A one-tier management system was implemented at the 14th General Meeting of Shareholders, with appointment of the first
Management Board of the Company in the following composition: Matjaž Gantar – President, Aleksander Sekavčnik –
Deputy president, Sergej Racman – member, Tomaž Butina- member, Draško Veselinovič, PhD – member and CEO, and
Peter Grašek, appointed as member of the Management Board and deputy CEO. The Management Board in its function of
the supervisory and management body began its mandate on 16 November 2009.
The Report of the Management Board's operations includes and describes also operations of the Supervisory Board until the
expiration of its mandate. The term »management of the Company« comprises operations of the Management Board until
the implementation of a one-tier management system, as well as operations of the executive members of the Management
Board.
Operations of the Supervisory Board and the Management Board
The Supervisory Board and the Management Board performed their roles in the corporate governance system in accordance
with the legal competences and responsibilities by regular monitoring of daily operations, by learning about the operations of
the management and its decisions and by reviewing proposals for changes and amendments. Through discussion and
proposed initiatives and opinions, the Management Board as the Supervisory Board before it, operated not only in their
supervisory role, but were also involved in developing of business strategies. The Supervisory Board and the Management
Board performed their tasks consistently and responsibly.
In accordance with their legal and statutory competences, the Supervisory Board and the Management Board in 2009
regularly monitored and supervised the Company’s operations throughout their mandates. They discussed the management
reports on daily operations and activities of the Company, learnt about important business events, monitored the work of the
management and followed implementation of the adopted resolutions. They primarily focused on professional supervision of
the operations and realisation of the strategy of the Company and the KD Group. They regularly monitored performance of
the Company and Group companies located abroad. By regular monitoring of the Company's performance, reviewing
proposals for changes and developing initiatives and opinions, their role was not only that of an active supervisor but also of
someone actively involved in the development of business strategies jointly with the Company's management.
In 2009 the Supervisory Board of KD Group held one constitutive meeting, eleven regular sessions and four correspondence
sessions and adopted a total 69 resolutions.
The Management Board of KD Group held a constitutive meeting in 2009, two regular meetings and adopted a total of 25
resolutions.
Through written materials and explanations provided by the management at meeting and through close cooperation with the
management, the Management Board and the Supervisory Board regularly monitored performance of the Company. The
quorum was always present at the meetings of the Management Board and the Supervisory Board and all members actively
participated in the discussions. The Company's management supplied all the relevant information to the Supervisory and the
Management Boards which were necessary for the performance of their supervisory and managerial roles. The Management
Board therefore assesses the co-operation of the Company's management as good.
At their meetings, the Management Board and the Supervisory Board discussed the following more important business
events and adopted the following more important resolutions:
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The KD Group Annual Report 2009
• At the correspondence meeting on 2 February 2009 the Supervisory Board appointed a four-member Management
Board whose mandate commenced on 3 February 2009 and determined competences of the President and members
of the Board;
• At its 4th meeting held on 28 May 2009 the Supervisory Board discussed the audited Annual Report of KD Group d.d.
and the audited Annual Report of the KD Group for 2008 and was informed of the auditor's opinions and proposal for
the distribution of the profit; further it adopted annual report of the Supervisory Board on the review of the annual
reports thus giving its approval to the Annual Reports of KD Group d.d. and the Group KD Group. The Supervisory
Board adopted the Constitution of the Audit Committee of KD Group d.d., appointed Audit Committee of the
Supervisory Board, and discussed and approved KD Group's plan for 2009 and internal audit plan of KD Group for
2009;
• At its 5th meeting held on 14 July 2009 the Supervisory Board discussed current business of the KD Group and
business report for the period January – May 2009;
• At its 7th meeting on 15 September 2009 the Management Board appointed Draško Veselinovič member of the
Management Board with his mandate commencing on 1 October 2009 and again allocated individual business areas to
members of the Management Board;
• At its 3rd conference meeting on 7 October 2009 the Supervisory Board was informed of the proposed Agenda for the
14th General Meeting of Shareholders, proposals for decisions and their justification, and with regards to the
implementation of a one-tier management system of the Company, gave its proposals for appointment of members of
the Management Board of KD Group;
• At its 10th regular meeting on 30 October 2009 the Supervisory Board discussed the non-audited business report of KD
Group d.d. and the Group KD Group for the first six months of 2009 and the report on current business of KD Group
from January to September 2009;
• At the constitutive meeting on 9 November 2009 the Management Board appointed Matjaž Gantar, member, President
of the Management Board, Aleksander Sekavčnik Deputy president, and Draško Veselinovič the CEO and Peter Graško
Deputy CEO.
• At its 1st regular meeting held on 23 November 2009 the Management Board discussed current business and appointed
Audit Committee of the Management Board.
The Company ensured business transparency through periodical and additional regular informing of the Shareholders and
other public via simultaneous publications on the Ljubljana Stock Exchange website SEOnet http://seonet.ljse.si and the
Company's website www.kd-group.com.
Based on the above, the Management Board has concluded that it was informed of all more important business events in
2009 that affected the performance of the Company and the Group KD Group. In view of the method of information provision
and cooperation between the management and the Management Board during the year it was not necessary for the
Management Board or its individual members to ask for additional information or to verify documentation on which the
information, important for the decision-making, was based.
Management Board's report on relations with the controlling entity
The Management Board also discussed the management’s report about relations with the controlling entity KD d.d. and
transactions with related parties in 2009, and has concluded that in the conclusion of legal transactions and other legal acts
between the controlling entity and its related parties, KD Group d.d. suffered no damage or deprivation.
Annual Report 2009 – View of the auditor's report, review and the Annual Report's approval
The audit of the Annual Reports of KD Group d.d. and the Group KD Group for the year 2009 (hereafter: Annual reports for
2009) was performed by the auditing firm Ernst & Young d.o.o., Ljubljana, who issued an unqualified opinion on the two
Annual Reports on 14 April 2009.
The audited Annual reports for 2009 were discussed by the Management Board on 22 April 2010.
The Management Board considered the two Annual reports and auditor's opinions for 2009 and has concluded the following:
• The 2009 Annual reports have been compiled in accordance with the Companies Act, Articles of Association and the
current accounting and reporting requirements;
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The KD Group Annual Report 2009
• The reports are comprised of all statutory formal and substantive elements of a commercial company's annual report
as required under the law and subsequently all the key data necessary for making decisions concerning their
approval;
• The 2009 Annual reports are inclusive of the auditor's opinion on the financial statement audit. It is clear from the
auditor's report that the financial statements are true and fair presentation of the financial position, operating result
and cash flows of KD Group d.d. and the Group KD Group. The certified auditor issued un unqualified opinion on
both sets of the financial statements.
Based on the above the Management Board issues the following observations:
Following its review of the auditor's opinions in accordance with paragraph 2, Article 282 of ZGD-1, the Management Board
hereby confirms that it has no comments on the opinions and agrees with the reports’ findings.
In accordance with paragraph 2, Article 282 of ZGD-1C the Management Board hereby confirms that it has no comments on
the Annual reports for the year 2009 and gives its approval to the Annual report 2009 of KD Group d.d. and to the Annual
Report 2009 of the Group KD Group.
Proposal for the net profit distribution
As part of the Annual reports 2009 review, the Management Board has found that in accordance with the resolution of the
management, the net loss of 2009 of EUR 52,827,433.37 was, as at 31 December 2009, settled as follows:
- EUR 8,152,469.82 was debited to the remaining portion of the retained earnings after the formation of treasury
reserves.
- EUR 44,674,963.55 was debited to capital surplus.
KD Group as at 31.12.2009 does not have profit for appropriation, therefore the Mangement Board did not create a
resolution regarding the use of the profit for the assembly.
Based on the review of operations of KD Group d.d. and the Group KD Group in 2009 as well as the audited Annual reports
of the Company and the Group, the Management Board proposes to the General Meeting to grant dismissal to members of
the management and supervisory bodies for the year 2009.
Ljubljana, 22 April 2010
Matjaž Gantar
President of the Management Board of KD Group
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The KD Group Annual Report 2009
EVENTS THAT CHARACTERISED 2009
Changes in the composition of the KD Group
16 January
- KD Finančna Točka d.o.o., Ljubljana acquires KD Financial Point in Bulgaria.
10 June
- KD Finančna Točka d.o.o. acquires Vitavizia d.o.o.
3 July
- KD Group d.d. acquires Sarbon Invest d.o.o., Uzbekistan.
27 July
- KD Kapital acquires FM-NET d.o.o.
29 October
- KD Kapital d.o.o., Ljubljana disposes of its stake in KD Mont a.d., Monte negro.
6 December
- KD Group d.d. disposes of KD Investments Bratislava
13
The KD Group Annual Report 2009
Other key events in 2009
January
– As one of the first in Slovenia, KD Skladi, Ljubljana, establishes KD Krovni sklad whereby all of its 17 mutual funds
are transformed into its sub funds.
– KD Skladi, Ljubljana, in cooperation with Concorde Premoženjsko svetovanje d. o. o. begins marketing new
savings plan VIP plus 100.
– At the now traditional, fifth presentation of awards to the best mutual fund managers by the magazine Kapital, the
KD MM money market fund receives a "Gold V" award in the category of one-year money market funds.
February
– On 3 February 2009, the Supervisory Board of KD Group d. d. adopts a decision on the appointment of a four-
member Management Board, comprising Matjaž Gantar, President, and Peter Grašek, Matija Šenk and Aljoša
Tomaž, members.
– KD Življenje organises an all-day family event at Postojna Caves to mark the Slovenian Cultural Holiday – the 3rd
Day of Culture and Attractions, where a palaeontology exhibition of cretaceous fossils and replicas of dinosaur
skeletons are on display.
– AS neživotno osiguranje, Beograd, opens a branch office in Niš.
March
- At the 12th General Meeting of Shareholders on 6 March, the members of KD Group d. d.'s Supervisory Board,
Aleš Vahčič, PhD, Alojz Penko and Bojan Sekavčnik are reappointed. The term of Supervisory Board members
begins on 9 March.
- KD Banka, specialising in private and personal banking services, begins operations.
- The Group KD Group celebrates 15 years of operations: on 11 March 1994, Kmečka družba, the legal predecessor
of KD Skladi, was entered in the Company Register.
- KD Življenje begins marketing Fondpolica Maks Garant Plus, a unique whole of life insurance product with
instalment or one-time premium payment and a payout of a minimum sum of net premium payments when the
insurance term expires.
– Peter Groznik, PhD assumes the function of President of the Management Board of KD Skladi.
April
– Matej Marošek becomes President of the Management Board of KD Finančna točka.
– The concert event of the year, Volkswagner, takes place: the musical project, initiated by KD Group d. d., combines
the talents of the legendary group Laibach, the RTV Slovenija symphony orchestra and conductor Izidor Leitinger.
The KD Group uses the concert as a platform for the grand celebration of its 15th anniversary of operations.
May
– Matej Tomažin becomes president of the Management board of KD Investments d.o.o., Zagreb.
– The KD Victoria fund, managed by KD Investments, Zagreb celebrates its 10th anniversary of operations.
– KD Življenje again sponsors the 3rd Festival of families organised in front of the entrance to the Postojna Caves.
– Adriatic Slovenica, insurance company, introduces a novelty – My first car policy – a new insurance cover available
to drivers with less than three years of driving experience.
June
– The General Meeting of KD Finančna točka appoints Katja Kraškovic member of the Management Board to
continue the work of Darja Gabrovšek Polajnar.
– The Management Board of KD Življenje appoints Gregor Šušmelj Director of the branch office KD Life in Slovakia,
thus replacing Pavol Norulak, the former CEO.
– Radovan Pušnar assumes the role of a member of the Management Board and CEO of KD Life AD, Bulgaria.
July
– KD Življenje launches new life insurance product on the market called ŽIVLJENSKI KASKO (HULL LIFE
INSURANCE) – life assurance policy where the sum insured is paid over the duration of the insurance policy..
– KD Kapital d. o. o. and ABDS d. d., Sarajevo are joint sponsors of summer holidays at Debeli rtič for children from
Bosnia and Herzegovina, organised for the fifth consecutive year by the institution »Krog« as part of their
humanitarian and development project »Give a Smile«.
14
The KD Group Annual Report 2009
August
– KD Skladi becomes the largest trust company in Slovenia in terms of the volume of assets under management.
– At the ‘Trusted Brand'' award ceremony, KD Skladi is awarded first place in Slovenia in the category »Investment
companies and Mutual funds«.
September
– From September KD Življenje offers a Guaranteed package, a stable and safe investment guaranteeing annual
return of a minimum 2.75%. If the return exceeds the guaranteed level, life insurances with the Guaranteed
package are eligible for the attribution of the annual surplus.
– KD Skladi launches a new savings plan VIP 100 Premium, which provides long-term return and allows investors
savings for a variety of purposes such as acquisition of a real estate, to supplement your pension, to provide
schooling for your children or grandchildren and other purposes, all with minimum regular payments into KD Krovni
sub funds.
– KD Privilege organises a lecture by Paul Krugman, a Nobel prize winner for economy and a lecturer at the
University of Princeton.
– KD Življenje opens a new branch office in Koper.
October
– The Management Board of Adriatic Slovenica Zavarovalna družba d. d. becomes a three-member Board following
retirement of Milena Georgievski, a long-term member and Deputy Chairperson of the Management Board. Other
functions of the insurance company's Management remain unchanged.
– Celebration of arrival of three Saimiri Monkeys to the Ljubljana ZOO after KD Življenje sponsored construction of a
new animal habitat.
– AS osiguranje in Serbia opens new offices of its business unit in Čačak.
– KD Banka integrates its first ATM into a network of ATMs linked to a Bankart processing centre.
– Special achievements awards in the field of PR are awarded at a formal evening of the 13th Slovene PR
conference - Prizma 2009. One of the awarded communications projects is also project developed by KD Življenje
»Dignitaries arriving to Ljubljana«, the first joint project marking a long-term partnership between KD Življenje and
Ljubljana ZOO.
– KD Fondovi, Macedonia celebrates the first anniversary of its two funds: “KD Brik” and “KD Južen Balkan”.
November
– The first magazine is issued under the KD Privilege trademark, intended for all potential and existing private
banking clients.
– The one-tier management system is implemented in KD Group following its registration in the court register.
– KD Življenje and Turizem Kras in cooperation with partners successfully bring to an end the Dinosaurs exhibition in
the Postojna Caves. In more than 10 months, the skeleton of the Mamenchisaurus was probably seen by over
472,000 visitors to the caves. The exhibition was seen by over 14,000 Slovene visitors who could purchase the
ticket for the caves at a 50% family discount.
December
– The first anniversary of the publication of the “Financial consultant when&how” magazine issued by KD Skladi and
KD Življenje.
– In order to optimize operations of KD Group as the only stakeholder in KD Investments, for the purpose of adapting
the operations of the KD Group to market conditions, and following the resolution of the KHoV – Serbian Securities
Market Agency (Komisija za Hartije od Vrednosti RS), consensus was given for the transfer of “KD Ekskluziv” fund
to Citadel Asset Management.
15
The KD Group Annual Report 2009
Important events following the end of the 2009 financial year
January
– KD Galileo, the first Slovene investment fund became off age in 2010, celebrating its 18th birthday. As a pioneer in
this particular field it is of great importance for the development of Slovene capital market as it has contributed to
the development of today's highly competitive mutual funds sector. Since its establishment, over 50,000 investors
have entrusted their assets to the fund which is today, with over EUR 150 million of assets under management, the
largest Slovene fund (excluding funds established on transformation of investment companies).
– www.financna-tocka.si website presents its new image, structure and comprehensive range of products and
services provided by KD. For the first time a uniform and expanded presentation of financial, banking and
insurance products and services of the KD Group is available on one location.
– KD Življenje life insurance company launches a new product on the market “Fondpolica Solist” life insurance tied to
the value of a unit of the assets of a long-term business fund “Aktivni naložbeni paket”.
February
– As from 15 February 2010, KD Banka’s personal accounts, cards, online banking, savings account and deposits
are available to the wider public in all branches of KD Finančna točka in Slovenia. Thus KD Banka, which has
initially provided private, personal and investment banking services, upgraded its range of products and services
with a wide palette of commercial banking services.
– By opening a classical personal account, clients will be issued BA Maestro card which will allow them to draw cash
at all ATMs in Slovenia and the EMU countries.
– Mastercard allows clients to defer payments (interest-free), thus saving time and money whilst having also a free
accident insurance in the event of death or permanent disability.
– Advantages of savings account which is administered by KD Banka free-of-charge include instant liquidity of
money, as cash can be transferred from personal account to the savings account and vice versa at any time.
Savings account pays interest at highly competitive rates (currently one of the best rates of interest compared to
other Slovene banks) and money can be withdrawn at any time as it is not deposited for a specified term.
– Online bank, one of the first in Slovenia, combines commercial and investment banking services, allows for a
comprehensive overview of services provided by KD Banka and domestic, overseas and international payment
processing. Online banking clients are able to order purchase or sale of securities on domestic (LJSE) and foreign
markets (currently XETA). In addition, transfer from trading to a personal account is free. Through online banking
clients may transfer funds between accounts freely and at any time.
– KD Banka also offers short-term and long-term deposits as a means of a safe and reliable investment.
– KD Življenje insurance company has for the fourth consecutive time organised now traditional gathering of families
called Day of Culture and Attractions.
March
– KD Skladi sponsored the project Clean Slovenia in One day by becoming the project’s Golden sponsor.
– KD Banka is integrated into the Bankarta centre which allows online payment using the special money order form.
– KD banka organises roundtable “Where does exit strategy lead to and what it means for financial markets? on 3
March in the Grand Hotel Union where experts from the field of economy, finance and business exchanged their
views and opinions.
– KD Življenje life insurance company launches new life insurance product Fondpolica EKSKLUZIV, developed in
cooperation with a renowned banking group BNP Paribas. This is a whole of life insurance policy where premiums
are paid in instalments and which offers a number of exclusive benefits including the best entry in the investment
and additionally integrated safeguards which provides a unique opportunity for a safe and profitable investment.
April
– KD banka introduces new service for retail users allowing them to make long-term deposits via online banking or in
any of the KD Finančna točka branches.
16
The KD Group Annual Report 2009
STRATEGIC ORIENTATIONS OF THE KD GROUP
MISSION, VISION, VALUES
Mission: responsible partnership between users, employees and owners
The Group manages financial assets of its users in a responsible, efficient and safe manner to ensure return. Employees
have the best working conditions, many possibilities for education, promotion and are granted incentives for job well done.
The Group ensures expected growth and profit for the owners and creates socially responsible partnerships between
mutually equal agents.
Vision: development growth and response expansion
We are a respected, dynamic and socially responsible financial group. Trustworthy experts fulfil the expectations of
customers with services that are a step ahead of the times. Accessible in one location, we shape the trends of financial
services in Southern and Eastern Europe.
Values: growth, respect, trust, excellence and support.
Growth
- professional approach and innovation are the corner stone of our growth.
- we are flexible and responsive.
- through sharing of knowledge and ideas we disseminate good practices
- my personal growth is our success
Respect
- in interactions with others we are kind, positive and honest
- we are open to opinions of others – we know how to listen and hear
- we appreciate everyone’s contribution, his/her uniqueness and diversity
Trust
- we have confidence in ourselves and our capabilities: we know how and we can
- through prudent and responsible actions we create a circle of trust
- we are genuine and keep to our agreements
Excellence
- through commitment and perseverance we realise our high objectives
- we are a step in front
- we work to the best of our abilities and together we recognise our successes
- we act in concert
Support
- we generate safe and positive working environment
- through collegiality we find the right way to ensure results
- we promote healthy balance between personal, family and business life
- we cooperate and help each other
REALISATION OF STRATEGIC OBJECTIVES AND ORIENTATIONS
The KD Group's strategic objectives and orientations were realised again in 2009 by seeking the best solutions and taking
advantage of opportunities for the growth and development of all companies in the Group.
17
The KD Group Annual Report 2009
Key operating highlights of division-based activities
– At the end of 2009 KD Banka had over 3,200 clients, while total value of assets held by private clients and assets
under individual management stood at EUR 51 million, and EUR 336 million of brokerage assets. The operations of
the banking division were marked by financial crisis to which we have responded efficiently. Much attention was
devoted to communications with our clients as we believe that direct communication is of vital importance as it
enables development of an individual relationship between a bank clerk and the client. Therefore we adjusted our
communications with clients to the time that was most suitable for them. In 2009 KD Banka focused on private and
investment banking. We have developed a range of products for corporate entities inclusive of transaction accounts,
deposits and a variety of credit facilities as well as online bank “Halcom”. For retail clients KD Banka developed
variety o personal accounts, payment cards, savings accounts, deposit accounts with various maturities, Lombard
loans and online banking.
– By mid 2009 conditions on capital markets have slowly stabilised and from March onwards the growth on capital
markets helped to boost investor confidence. In terms of return and also in terms of gaining new investors, the funds
within the Group performed well. In terms of return our funds successfully competed against local and foreign
competition and some were best performed funds in their individual categories. The trend of increasing number of
accession forms has continued resulting in positive cash flows of the funds managed by the Group. At the end of the
year total assets managed by all asset management companies in the Group stood at EUR 449.1 million, compared
to EUR 360.6 million at the end of 2008.
– Insurance sector could not avoid the impact of global economic crisis which was demonstrated in limited growth in
property insurances and negative growth of gross life insurance premiums. In 2009 the KD Group gained a 17%
share on Slovene insurance market with a total of EUR 329.3 million of insurance premiums ( Adriatic Slovenica
EUR 260.6 million and KD Življenje EUR 68.7million). KD Življenje life insurance company is the second largest life
insurance company in Slovenia and in spite of difficult market conditions, at the end of 2009 it increased its market
share to solid 14.1 percent. In 2009 Adriatic Slovenica recorded a 12.56% market share, making it the third largest
insurance company in Slovene insurance market. In property insurance division the insurance company recorded a
17.01 percent share of the market and in health insurance divisions, a 23.9 percent % market share.
– At the end of 2009 KD Finančna točka's range of insurance products comprised life insurance provided by KD
Življenje, information, consultancy and accession to 17 sub funds of KD Krovni sklad and VIP 100 Premium savings
plan offered by KD Skladi, health and property insurance offered by Adriatic Slovenica, stockbrokerage services,
individual asset management services provided by KD Banka and voluntary health insurance abroad inclusive of
assistance, offered by Assistance CORIS. The range of services of KD Finančna točka will be further increased in the
beginning of 2010 with banking services provided by KD Banka. At the end of 2009 KD Finančna točka registered
851 new investors and over EUR 18 million of direct payments into the mutual funds of KD Skladi, and together with
transfers, we recorded a total of EUR 32 million of payments. KD Finančna točka agreed over 9,000 new insurance
policies and 2,000 insurance policies were agreed with the existing insurants. Total new annual premium stood at
over EUR 5,300,000 and single premium over EUR 4,700,000. Our website www.financna-tocka.si had over 250,000
visitors in 2009, and our KD Plus Club had over 72,000 members at the end of 2009.
Looking ahead to 2010
– In the previous year we focused on expansion of our range of services with banking products and services. Through
a comprehensive range of financial and insurance services we have realised one of our key strategic objectives of the
KD Group. In 2010 we will devote our attention to making our products and services available to the wider public by
developing sales channels which will enable individuals to arrange all their financial matters in one place.
– Comprehensive range of products and services and complementarities between the Group companies allow us to
efficiently utilise internal synergies. In 2010 we shall strive to organise our operations in a manner that will ensure
efficiency whilst at the same time preserving or even improving high quality standards of our services.
– Due to stringent conditions on markets and sectors where the Group operates, we will have to focus primarily on the
most promising markets and activities.
18
The KD Group Annual Report 2009
SHARES, DIVIDENDS AND OWNERSHIP STRUCTURE
Basic information on shares, dividends and equity
KD Group's share capital totalled EUR 98,215,756.97 as at 31 December 2009 and was represented by 2,942,053 no-par-
value shares (of which 2,675,640 were ordinary shares of KDHR, while 266,413 were preference participating shares of
KDHP).
Ordinary shares of KD Group (KDHR) have been listed on the entry market of the Ljubljana Stock Exchange since 5
February 2001. At incorporation, all issued shares were defined as ordinary registered shares with voting rights and a
nominal value of EUR 33.38 each. The first General Meeting of Shareholders held in May 2001 passed a resolution
converting a maximum of 595,691 ordinary registered shares into cumulative preference shares with no voting rights.
Preference shares (KDHP) have been listed on the entry of the Ljubljana Stock Exchange since 12 July 2001. The rights of
holders of these shares include:
– the right of priority in payment of dividends before holders of ordinary shares in the amount of EUR
1.67, for a cumulative period of five years;
– in the event of a dividend payout to holders of ordinary shares, the right to the payment of additional
dividends of at least EUR 1.67, bringing the total dividend to a maximum of EUR 3.34;
– during the liquidation of the company, priority in the payment of residual assets before holders of
ordinary shares in the amount of EUR 33.38.
Authorised capital totalled EUR 49,107,878 as at 31 December 2009. Pursuant to the resolution passed at the 8th General
Meeting of Shareholders on 13 October 2005, the Management Board is authorised to increase the company’s share capital
by a maximum of EUR 49,107,878 by issuing new shares for cash or contributions-in-kind within five years following the
entry of the amendment to the Articles of Association in the Company Register (16 November 2005). The Management
Board has not yet used the authorised capital.
The book value of the KDHR and KDHP shares was EUR 57.38 as at 31 December 2009, a decrease of 23% from the
previous year, when it stood at EUR 74.57. The book value of a share is calculated as the book value of the equity of
majority shareholders as at the end of the accounting period under the IFRS, divided by the number of all shares, excluding
treasury shares, as at the end of the accounting period.
Net earnings per share amounted to EUR -20.35 in 2009, compared to EUR -2.55 in 2008. Net earnings per share was
calculated as the net profit pertaining to majority shareholders less dividends paid on preference shares (excluding treasury
shares) for the accounting period divided by the average number of all issued ordinary shares, excluding treasury shares, in
the accounting period.
Share price movement
Ordinary shares of KDHR in 2009
Transactions made on the Ljubljana Stock Exchange in 2009 in ordinary shares of KDHR totalled EUR 2,676,049.41. The
share price stood at EUR 54.50 at the beginning of the year. The lowest share price in 2009 was EUR 48.40, while the
highest price was EUR 61.46.
Basic indicators for ordinary shares of KDHR:
As at 31st December 2009
Share details As at December 2008
31st (EUR) Index 09/08 (in %)
Number of shares 2,675,640 2,675,640 0
Market price (in EUR) 54.10 50.57 -6.52
Market capitalisation (in million EUR) 144.75 135.31 -6.52
Sources: Ljubljana Stock Exchange, GVIN and own calculations of KD Group
19
The KD Group Annual Report 2009
Comparison of changes in SBITOP (in points) and the share price of KDHR (in EUR) from 1 January 2009 to 31 December
2009:
Source: Ljubljana Stock Exchange
Preference shares of KDHP in 2009
Transactions made on the Ljubljana Stock Exchange in 2009 in preference shares of KDHP reached EUR 738,359.30. The
share price of KDHP began the year at EUR 25.29. The share price fell to its lowest value on the one but last trading day (29
December 2009), when it was worth EUR 18.21. There were considerably fewer transactions made in preference shares of
KD Group in 2009 than in ordinary shares, the difference being as much as 72.41 percent.
Basic indicators for preference shares of KDHP:
As at 31st December 2009
Share details As at 31st December 2008 (EUR) Index 09/08 (in %)
Number of shares 266,413 266,413 0
Market price (in EUR) 25.29 18.28 -27.72
Market capitalisation (in million
EUR) 6.74 4.87 -27.72
Sources: Ljubljana Stock Exchange, Bloomberg, own calculations of KD Group
Comparison of changes in SBITOP (in points) and the share price of KDHP (in EUR) from 1 January 2009 to 31 December
2009:
Source: Ljubljana Stock Exchange
20
The KD Group Annual Report 2009
Ownership structure
The largest shareholder of KD Group is the company KD, finančna družba, d. d., owning 1,859,312 registered ordinary
shares of KDHR, or 69.49 % of all such shares, and 63.20 % of all shares issued. In all transactions with the parent company
KD in 2009, KD Group d. d. received the appropriate payments and compensation and did not suffer any losses as the result
of these transactions.
Ownership structure of KD Group d. d. as at 31 December 2009:
Number of
shareholders Number of shares Share (in %)
KDHR – registered ordinary shares
Domestic entities 26,075 2,548,470 86.62
Legal entities 112 2,276,685 77.38
Individuals 25,963 271,785 9.24
Foreign entities 282 127,170 4.32
Legal entities 57 124,623 4.24
Individuals 225 2,547 0.09
Total KDHR 26,357 2,675,640 90.94
KDHP – registered participating preference
shares
Domestic entities 10,961 225,945 7.68
Legal entities 30 114,656 3.90
Individuals 10,931 111,289 3.78
Foreign entities 56 40,468 1.38
Legal entities 13 40,036 1.36
Individuals 43 432 0.01
Total KDHP 11,017 266,413 9.06
Total 37,374 2,942,053 100.00
Ten largest holders of ordinary shares (KDHR) as at 31 December 2009:
Proportion of all
Number of
Shareholder Location KDHR shares
KDHR shares
(in %)
1 KD d. d. Ljubljana 1,859,312 69.49
2 KDH Naložbe d. o. o. Ljubljana 111,095 4.15
3 Caranthania Investments Luxembourg 102,457 3.83
4 Auctor d. o. o. Ljubljana 99,168 3.71
5 Avra d. o. o. Ljubljana 91,281 3.41
6 Adriatic Slovenica d. d. Koper 46,000 1.72
7 Onisac d. o. o. Ljubljana 20,862 0.78
8 Zveza bank reg. z. zo. j. bank und revisions Celovec 17,897 0.67
9 KD Group d. d. Ljubljana 16,201 0.61
10 Šifrer Peter Medvode 7,982 0.30
Total of the top ten holders of KDHR shares 2,372,255 88.66
Others 303,385 11.34
Total KDHR shares 2,675,640 100
21
The KD Group Annual Report 2009
Ten largest holders of preference shares (KDHP) as at 31 December 2009:
Proportion of all
N umber of
Shareholder Location KDHP shares
KDHP shares
(in %)
1 Adriatic Slovenica d. d. Koper 51,306 19.26
2 Cercia Holding Limited Limassol 38,892 14.60
3 Marles d. d. Limbuš 21,291 7.99
4 KDH Naložbe, d. o. o. Ljubljana 13,070 4.91
5 Krona Senior d. d. Ljubljana 10,000 3.75
6 Vovk Boštjan Ljubljana 7,665 2.88
7 Niton d. o. o. Ljubljana 7,441 2.79
8 PM & A d. o. o. Ljubljana 6,040 2.27
9 Tomažin Matej Ljubljana 2,050 0.77
10 Gostinstvo Žalec, d. o. o. Žalec 2,019 0.76
Total of the top ten holders of KDHP shares 159,774 59.98
Others 106,639 40.02
Total KDHP shares 266,413 100
Ten largest holders of regular (KDHR) and preference shares (KDHP) jointly as at 31 December 2009:
Proportion of share
Number of
capital
Shareholder Location KDHR and
KDHR and KDHP
KDHP shares
(in %)
1 KD d. d. Ljubljana 1,859,312 63.20
2 KDH Naložbe, d. o. o. Ljubljana 124,165 4.22
3 Caranthania investments Luxembourg 102,457 3.48
4 Auctor d. o. o. Ljubljana 99,168 3.37
5 Avra, d. o. o. Ljubljana 91,281 3.10
6 Adriatic Slovenica d. d. Koper 97,306 3.31
7 Cercia Holding Limited Limassol 38,892 1.32
8 Marles d. d. Limuš 21,291 0.72
9 Onisac d. o. o. Ljubljana 20,862 0.71
10 Zveza bank reg. z. zo. j. bank und revisions Celovec 18,882 0.64
Total of the top ten holders of KDHP and KDHR shares 2,473,616 84.08
Others 468,437 15.92
Total KDHP and KDHR shares 2,942,053 100
Treasury shares
KD Group d. d. held 16,201 ordinary KDHR shares representing 0.55% of the company's share capital as at 31 December
2009
22
The KD Group Annual Report 2009
CORPORATE GOVERNANCE STATEMENT
Responsible corporate governance is the basis for all the KD Group’s activities. This mission is followed by the management
and supervisory bodies of the parent company KD Group, where a one-tier management system has been implemented
since 16 November 2009. KD Group d. d. provides the Corporate Governance Statement in accordance with the provision
from the fifth paragraph of Article 70 of the Companies Act. Explanations relating to the sixth paragraph of Article 70 of the
Companies Act are given in the section Shares, Dividends and Ownership Structure and on the company's website at
www.kd-group.com.
Management system of KD Group
In 2009, KD Group d.d. changed from a two-tier management system where competences are divided between the General
Meeting, Supervisory Board and the Management Board, to a one-tier management system where management process is
exercised with cooperation between the General Meeting and the Management Board. Below we present operations of the
General Meeting in 2009, whose competences in both systems are comparable, followed by a description of operations of
the two-tier management system which was exercised in the Company from its establishment and until 15 November 2009.
Further we provide description of the roles and position of the Management Board members, CEOs and audit committee in
relation to the General Meeting, as assumed by them on 16 November 2009.
1. General Meeting of Shareholders of KD Group
The General Meeting of Shareholders of KD Group d. d. adopts the basic decisions leading to the realisation of the central
economic objective: creating value for shareholders.
In 2009 the General Meeting held 12th, 13th and 14th General Meeting of Shareholders, with an average 84.13 percent
representation of all ordinary KDHR shares with voting rights. At the 13th General Meeting where, according to the agenda,
holders of the preference shares also had a right to vote, 20.68 percent of all preference KDHP shares were represented.
At the 12th General Meeting of Shareholders on 6 March 2009, the mandate of the Supervisory Board members was
extended.
At the 13th General Meeting of Shareholders on 28 August 2009, the Shareholders adopted a resolution not to appropriate
the balance sheet profit of EUR 8,903,201.33 as at 31 December 2009 and to defer the decision on its appropriation until the
next year. The Shareholders issued a discharge to the Management Board and the Supervisory Board, thus confirming and
approving the work of their members in 2008, further they adopted a resolution on determination of compensation to
members of the Supervisory Board and its Committee members, and appointed auditing firm Ernst & Young, d. o. o.,
Ljubljana, as the auditors for the financial year 2009.
At the 14th General Meeting of Shareholders on 9 November 2009, the Shareholders adopted amendments to the Articles of
Association of the Company related to the implementation of a one-tier management system, supplementation of the
Company's activity, and harmonisation of the provisions of the General Meeting of Shareholders with the Companies Act
ZGD-1C. Due to a transfer to a one-tier management system, the Shareholders decided that as of the day of registration of
the amendments to the Article of Association in the court register, the mandate of members of the Management and
Supervisory Board expires, and they appointed members of the first Management Board of KD Group for the first four-year
mandate.
Resolutions passed at the 12th, 13th and 14th General Meeting of Shareholders were published and are accessible on the
SEOnet website and at the Company's website at (http://www.kd-group.com/?subpage=741).
23
The KD Group Annual Report 2009
2. Management bodies at KD Group d. d. – tasks and responsibilities in a two-tier management system
2.1. Supervisory Board
The operations of the parent company KD Group was until and including 15 November 2009, supervised by a three-
member Supervisory Board. Its powers and responsibilities were set out in its own Rules of Procedure, the company’s
Articles of Association and the applicable legislation. Due to a transfer to a one-tier management system, the mandate of
all members of the Supervisory Board expired whereby at the last day of their mandate, on 15 November 2009, the
composition of the Supervisory Board was as follows:
• Aleš Vahčič, PhD (Chairman), doctorate in economics
• Alojz Penko (Deputy Chairman), agronomic engineer
• Bojan Sekavčnik (Member), university graduate in economics
2.1.1. Work of the Supervisory Board
KD Group d. d.’s Supervisory Board held one constitutive session, eleven regular sessions and four correspondence
sessions in 2009. At its sessions, the Supervisory Board regularly monitored the Company's operations and that of the KD
Group and monitored the implementation of the adopted business plan. The Supervisory Board provided details regarding its
work in the Report of the Supervisory Board to Shareholders on Verification of the Annual Report. This report is submitted to
shareholders as part of the materials for the General Meeting of Shareholders, which decides on the appropriation of the
balance sheet profit.
24
The KD Group Annual Report 2009
2.2. Management Board
Until 16 November 2009, KD Group was managed by the Management Board, appointed by the Supervisory Board for a
four-year mandate. The number of the Management Board members was stipulated in the Articles of Association, while the
scope of work and authorisations of individual members were after its expansion from a single to a four-member
Management Board allocated by the Supervisory Board. Until 3 February 2009 the Management Board represented a single
member - Matjaž Gantar. As of 3 February 2009, the Supervisory Board appointed a four-member Management Board with
a four-year mandate in the following composition:
• Matjaž Gantar (The President of the Management Board), university economics graduate,
• Peter Grašek (Member), bachelor of laws,
• Aljoša Tomaž (Member), university graduate in economics,
• Matija Šenk (Member), university graduate, mathematical engineer.
On 11 November 2009, the Supervisory Board relieved Aljoša Tomaž from his office as member of the Management Board
and appointed Draško Veselinovič, PhD. a new member as of 1 October 2009. Following the implementation of a one-tier
management system, the Management Board consisting of Gantar Matjaž, President, Peter Grašek, Draško Veselinovič
and Matija Šenk as members, ceased to operate and as from 16 November 2009, the majority of its competences for
managing the business (as explained in section 3 of this chapter) were transferred to Draško Veselinovič, PhD, CEO and its
Deputy, Peter Graško who were appointed by the Management Board members as CEOs.
2.2.1. Members of the Management Board hold the following offices on management and supervisory
bodies of other companies
2.2.1.1. Matjaž Gantar
Company Function (as at 31.12.2009)
KD d. d., Ljubljana Member of the Management Board
Adriatic Slovenica, d. d., Koper Member of the Supervisory Board
KD Banka d.d. President of the Management Board
Seaway Group, d. o. o., Bled Member of the Supervisory Board
DRI Naložbe, d. o. o., Ljubljana General Manager
Vila Zahod, d. o. o., Ljubljana General Manager
KDH Naložbe d. o. o., Ljubljana General Manager
KDG Naložbe d. o. o., Ljubljana General Manager
Vila Nova d.o.o., Ljubljana General Manager
2.2.1.2. Peter Grašek
As at 31 December 2009, Peter Grašek was not member of management or supervisory bodies of other entities.
2.2.1.3. Aljoša Tomaž
Function (as at 11.8.2009, the last day of the office of a member of the
Company management of KD Group)
KD Banka d.d. CEO
Terme Maribor d.d., Maribor Deputy chairman of the Supervisory Board
KD Upravljanje imovinom, d.o.o., Member of the Supervisory Board
Zagreb
KD Capital Management, Bucharest Member of the Management Board
2.2.1.4. Matija Šenk
Function (as at 15.11.2009, the last day of the office of a member of the
Company management of KD Group)
KD Življenje d.d. President of the Management Board
KD Life Asigurari s.a., Bucharest President of the Management Board
KD Life a.d, Sofia President of the Management Board
KD Životno osiguranje d.d., Zagreb Member of the Supervisory Board
KD Fond de Pensii s.a., Bucharest President of the Management Board
KD Banka d.d. Member of the Management Board
25
The KD Group Annual Report 2009
2.2.1.5. Dr. Draško Veselinovič
Company Function (as at 31.12.2009)
Krka d.d., Novo mesto Member of the Supervisory Board
3. Management bodies of KD Group –tasks and competencies in a one-tier management system
GENERAL MEETING OF
SHAREHOLDERS
Appointing and recalling Management Board members Authorisation to convene the General Meeting
Awarding discharge to Management Board members Formation of proposals for resolutions (appointing/recalling
Management Board members, appropriation of undistributed profits,
Deliberating on Management Board members‘ remuneration
changes to the share capital, appointing the auditor and similar)
Adoption of other resolutions in accordance with the law tasks, report on the verification and approval of the annual report
and opinion regarding the auditor’s report,
Implementing the adopted resolutions
Other reporting and notifying of the General Meeting
Appointing/recalling chief executive
officer (from within Management
Board members)
Appointing audit committee from
within Management Board members
and external experts)
Signing contracts with chief executive
officer, stipulating his /her
Reporting and notifying regarding
remuneration, approval of loans to
business conduct
MANAGEMENT chief executive officer
Preparation of the annual report
BOARD Supervising chief executive officer’s
NON-EXECUTIVE MEMBERS business conduct
+
CHIEF EXECUTIVE OFFICER
AUDIT COMMITTEE
3.1. Management Board
3.1.1. Operations of the Management Board
The Management Board is comprised of members, appointed by the General Meeting of Shareholders. The Management
Board manages and supervises the managing of the Company and represents Company in all matters that are outside the
competencies of the Chief Executive Officers. The Management Board must meet at least on a quarterly basis.
The Management Board from among its members appoints chief executive officers who present and represent the Company.
The Management Board's competences are applicable to all its members, with some of them being transferred to the two
CEOs. Therefore, in accordance with the Articles of association, the two chief executive officers present and represent the
Company, they manage daily business, they report entries and submit documents for entry in the register, they are in charge
of keeping books of account and of the annual report preparation. The two CEOs manage the business by complying with
instructions and limitations laid down by the Articles of Association, the Management Board, the General Meeting of
Shareholders and the Rules of procedure of the CEOs. The Management Board may at any time recall a Chief executive
officer.
26
The KD Group Annual Report 2009
As from 16 November 2009, KD Group is managed and supervised by the Management Board (MB) in the following
composition:
• Matjaž Gantar (President MB), university graduate in economics,
• Aleksander Sekavčnik (Deputy president MB), university graduate in economics,
• Tomaž Butina (member MB, President of the Audit Committee), university graduate, computer engineer,
• Sergej Racman (member MB, Deputy President of the Audit Committee), engineer of physics and mathematics,
• Draško Veselinovič (member MB, CEO), doctorate in economic science,
• Peter Grašek (member MB, deputy CEO), bachelor of laws.
The Management Board held a constitutive session and one regular session in 2009. The Management Board provided
details regarding its work in the Report of the Management Board to Shareholders on Verification of the Annual Report. This
report is submitted to shareholders as part of the materials for the General Meeting of Shareholders, which decides on the
appropriation of the balance sheet profit and is also published on the Company's website.
3.1.2. Members of the Management Board hold the following offices on management and supervisory
bodies of other companies
With regards to Matjaž Gantar, President of the Management Board, Draško Veselinovič, PhD and Peter Graško,
membersthe presentation is given in section 2.2.1. of this Chapter.
3.1.2.1. Aleksander Sekavčnik
Company Function (as at 31.12.2009)
KD d.d., Ljubljana Member of the Management Board
KD Življenje d.d., Ljubljana President of the Supervisory Board
KD Investments A.D., Beograd Member of the Management Board
KD Banka d.d., Ljubljana Member of the Management Board
P.C.I. d.o.o., Ljubljana General Manager
Sekavčnik in družbenik d.n.o., Ljubljana General Manager
PM & A FA d.d., Ljubljana Member of the Supervisory Board
3.1.2.2. Tomaž Butina
Company Function (as at 31.12.2009)
KD d.d., Ljubljana Member of the Management Board
KD Banka d.d., Ljubljana Member of the Management Board
AVRA d.o.o., Ljubljana General Manager
Dermatologija Bartenjev-Rogl d.o.o. General Manager
27
The KD Group Annual Report 2009
3.1.2.3. Sergej Racman
Company Function (as at day 31.12.2009)
KD d.d., Ljubljana Member of the Management Board
Kolosej kinematografi d.o.o., Ljubljana President of the Management Board
Kolosej Maribor d.o.o., Maribor General Manager
Kolosej zabavni centri d.o.o., Ljubljana General Manager
Adriatic Invest d.o.o., Ljubljana General Manager
Priori d.o.o., Ljubljana General Manager
XpanD d.o.o., Ljubljana General Manager
Zabavna znanost d.d., Ljubljana General Manager
KD Življenje d.d., Ljubljana Deputy President of the Supervisory Board
KD Banka d.d., Ljubljana Member of the Management Board
PM & A FA d.d., Ljubljana President of the Management Board
PM & A IP d.o.o., Ljubljana General Manager
PM & A MT d.o.o. General Manager
Adriatic Invest LLC., Wilmington General Manager
European Funds Inc, Wilmington General Manager
Sidbury Enterprises Ltd., Limassol General Manager
Auctor d.o.o., Ljubljana General Manager
3.1.3. Equity stakes of the Management Board
As at 31 December 2009, members of the Management Board held the following direct stakes in the Company:
• Matjaž Gantar held 2,643 of ordinary registered shares KDHR;
• Tomaž Butina held 16 ordinary registered shares KDHR;
• Aleksander Sekavčnik held 3 ordinary registered shares KDHR;
• Sergej Racman, Draško Veselinovič, PhD and Peter Grašek held no direct ordinary shares of the Company as at 31
December 2009.
The members of the Management Board currently hold no stock options in KD Group d. d.
3.1.4. Management Board's Committees
On 23 November 2009, in accordance with its competences, the Management Board appointed Audit Committee comprised
of president and three members. The Audit Committee is the Management Board's body that supports the management
Board in the fulfilment of its comprehensive responsibility for the supervision of the activities of the Company and its
subsidiaries including the accounting reporting system, internal control system, audit processes and processes used to
ensure compliance with the laws, regulations and internal rules as well as ethical guidelines or code of practice. The purpose
of the Audit Committee's activity is to allow the Management Board to exercise more reliable, efficient and successful
operations in realising the vision, mission and strategic goals of the Company and the Group. The Audit Committee is a
professional working core of the Management Board for the fields for which it is responsible, who submits its professional
proposals to the Management Board, reports its findings and is responsible for its actions to the Management Board.
28
The KD Group Annual Report 2009
4. Overview of remuneration paid to members of the management and supervisory bodies in 2009
NAME AND SURNAME Meeting fees and
payments for
Fixed Variable membership in the
Reimburs Insurance
earnings earnings Holiday Profit Option SB/MB/Audit
ement of premiums- Commission
allowance participation plan Committee, other
costs PDPZ
additional payments
(copyrights, benefits
and similar)
Matjaž Gantar 4 63,780.77 / 1,124.42 / / 1,166.19 248.40 / 7,859.84
Peter Grašek 5 135,050.66 / 2,248.84 / / 956.80 248.40 / 5,064.00
Aljoša Tomaž 6 140,869.99 115,676.16 2,248.84 / / 1,598.31 62.10 / 8,168.93
Matija Šenk 7 126,641.75 / 2,248.84 / / 1,455.67 2,170.50 / /
Draško Veselinovič / / / / / 1,976.44
21,131.00 204.56 41.40
PhD 8
Aleš Vahčič PhD 9 / / / / / / / / 150,102.06
Alojz Penko 10 / / / / / / / / 6,551.00
Bojan Sekavčnik 11 / / / / / / / / 6,025.86
Sergej Racman 12 / / / / / / / / 5,437.93
Aleksander Sekavčnik / / / / / / / / 46,858.92
13
Tomaž Butina 14 / / / / / / / / 3,514.30
*Gross amounts in euros. These remunerations are based on the performance of tasks and functions in the management and supervisory bodies of the KD
Group as well as the tasks and functions in the management and supervisory bodies of the following subsidiaries: Adriatic Slovenica d.d.; KD Skladi d.o.o.;
KD Življenje d.d.; KD Banka d.d.; KD Životno Osiguranje d.d., Croatia; KD Life, Bulgaria; KD Life, Romania; KD Life Ukraine and SC KD Fond de Pensii,
Romania.
5. Auditing and the internal control system
The financial statements of KD Group d. d. and the KD Group for 2009 were audited by the independent auditing firm Ernst &
Young d.o.o., Ljubljana. The certified auditor issued an unqualified opinion on the annual reports of KD Group d. d. and the
Group KD Group for 2009. More about risk management can be found in the section on Risk Management in this Annual
Report.
6. Transparency of the Company's operations
Transparency of operations is provided primarily by keeping shareholders and the general public informed, namely by
providing regular bulletins and information about particular events. Information regarding operations, business plans and
other important activities is published on the company’s website at www.kd-group.si, and on the Ljubljana Stock Exchange’s
SEOnet website at http://seonet.ljse.si.
7. Management of related parties
Related companies are actively managed through representatives of the controlling entity in the management and
supervisory bodies of these companies and by participation at the General Meetings.
4 Matjaž Gantar: Company Director until 3 February 2009; President of the Management Board from 3 February until 15 November 2009; (non-executive)
member of the MB since 16 November 2009.
5 Peter Grašek: General Manager until 3 February 2009; member of the MB from 3 February to 15November 2009, Member of the MB and CEO since 16
November 2009.
6 Aljoša Tomaž: Assistant director until 3 February 2009, member of the MB from 3 February to 11 August 2009.
7 Matija Šenk: head of projects until 3 February 2009 ; from 3 February to 15 November 2009, Member of the MB.
8 Draško Veselinovič, PhD, Member of the MB from 1 October to 15 November .2009 , Member of the MB and CEO since 16 November 2009.
9 Aleš Vahčič, PhD: Member of the SB until 15 November 2009.
10 Alojz Penko: Member od the SB until 15 November 2009.
11 Bojan Sekavčnik: Member od the SB until 15 November 2009
12 Sergej Racman: Member od the MB since 16 November 2009
13 Aleksander Sekavčnik: non-executive member of the MB since 16 November 2009.
14 Tomaž Butina: non-executive member of the MB since 16 November 2009.
29
The KD Group Annual Report 2009
Statement of the Management Board of KD Group d. d. about compliance with the Corporate
Code for Public Limited Companies
The Management Board of KD Group d.d., finančna družba, Celovška 206, 1000 Ljubljana (KD Group or the Company)
hereby declare that in the process of managing KD Group it follows provisions of the Corporate Code for Public Limited
Companies ( Official Gazette of the RS No. 118/05 as amended on 5 February 2007, as published on the official website of
the Ljubljana Stock Exchange d.d. http://www.ljse.si in the Slovene and English languages (the Code), whereas deviations
from provisions of individual chapters of the Code as determined during the drawing up of this statement, are disclosed and
explained below:
1. RELATIONSHIP BETWEEN THE COMPANY, SHAREHOLDERS AND OTHER STAKEHOLDERS
• Items 1.2.6. and 1.3.12:
In the past General Meetings of KD Group did not directly or through financial or other organisations and agents organise the
collection of proxy statements. Further, it did not indicate on its website that members of the management or supervisory
bodies were receiving proxy forms for voting at the General Meeting. If in future the Management of the Company assesses
that there is sufficient interest to organise such collection, it will ensure that the data is indicated and available on the
Company's official website.
2. MANAGEMET BOARD
• Items 2.3.2. and 2.3.3.:
Policy relating to compensation, remuneration and other benefits has not been determined in advance.
3. SUPERVISORY BOARD
• Items 3.1.7. , 3.1.10., 3.1.11. and 3.7.:
The Management Board is operating as a collective body and as a rule, meets in full composition, by participation of all
members, who at all times strive for quality work and professional decision-making process. Until this statement was
formulated, the Management Board did not implement assessment of work of individual members.
8. DISCLOSURES
• Item 8.2.:
In view of the existing Shareholder structure, costs, and as the majority of the Company's business partners are located in
the Republic of Slovenia and certain neighbouring countries, the Management Board believes that at the time of drafting this
declaration updated publication of its reports also in the English language is not necessary. All the key basic information
about the Company for English speaking business environment are included in the publication of the English language
Annual Report.
• Item 8.6.:
Financial calendar for the next financial year is not published on the Company's official website. Both, periodical and »ad
hoc« publications of all important business events are provided within the shortest possible deadlines as the Company is
striving to ensure quality information to all of its investors.
• Item 8.7.2.:
The Company does not directly monitor or publicise any potential conflicts of interest with other companies (ownership of a
significant share of voting rights in another company who also holds a significant share of voting rights of KD Group). All
received notifications of changes in the ownership of significant share of voting rights in KD Group are disclosed in a
transparent manner; in addition, the Company notifies other public limited companies of any potential changes in significant
share of voting rights of the latter in accordance with the current regulations.
In Ljubljana, 22 April 2010
President of the Management Board
Matjaž Gantar
30
The KD Group Annual Report 2009
ANALYSIS OF OPERATIONS
Capital markets in 2009
The US and Europe in 2009
In the latter months of 2008, the financial crisis of 2007, with its epicentre in the USA who account for almost one quarter of
the world’s GBD and over 16 percent of global demand, shifted from financial markets to the real market, spreading to the
whole world. In the first quarter of 2009 there was no single safe investment as all sectors were in the red. In the beginning of
March, the US S&P 500 index fell through the 700 barrier and continued its fall, reaching its lowest point in the past thirteen
years on 9 March with 666 points. There was much talk about the possible repeat of the depression from the 1930s, about
the volatility of the financial system, potential nationalisation of some of the largest US banks, and similar scenarios. When
the probability of such scenarios occurring reduced and several sectors succeeded to regain the position before the failure of
the US investment bank Lehman Brothers, the conditions were right for the beginning of the strong growth of global stock
markets. The winner of the first half of the year was the technology sector which in the first six months of 2009 gained 24.08
percent, followed by the energy and raw materials sector with 12.28 percent growth and the sector of durable consumer
goods which in that same period gained 7.52 percent, whereas the financial and industrial sector remained in negative
figures in the first half of 2009 recording a 4.76 percent and 7.68 percent decline respectively. In the second half of 2009, the
market needed proof that the economy had reached the bottom and was eagerly awaiting the first information of the actual
outset of economical revival in the developed world. The next condition for higher exchange quotations was the publication of
profits achieved in the second quarter of 2009 which, in the case of US S&P 500 index, surpassed all analysts’ expectations
in over 70 percent of announced results. In addition to these, the zero interest rates and support in the increased liquidity of
central banks which additionally contributed to high gains on stock markets, should not be overlooked. After the credit crunch
in the second half of 2008 and the first few months of 2009, central banks were forced to, with increased liquidity, support the
financial sector, make available credit lines and support the remaining economy in the developed world. The US S&P 500
index recorded a nearly 26 percent growth at the end of 2009 and by the beginning of March, it increased by a total of 68
percent compared to its lowest point. Last year’s growth of the S&P 500 index is the highest since 2003. Revival of the
labour market and accessibility to and availability of new loans will be of key importance in 2010. The question of how stable
is the final consumption which is, as has been demonstrated several times, to a large extent dependent on the repayment of
debt of US consumers, still remains. In the past 20 years, consumers financed increased consumption with ever increasing
indebtedness, a process which is, at least for the time being, locked. Increased consumption on account of higher stock
market prices cannot be expected since real estate prices continue to be under pressure and nearly two thirds of an average
American family’s assets are tied in this particular segment. The rate of savings is currently stable at around 4 and 5 percent
and since production capacity utilisation remains at historically low levels, no wage and salary increases can be expected at
least in the short-term. The main risks that could in 2010 surprise investors include the following:
• Private sector’s inability to compensate for reduced government subsidies.
• Analysts’ expectations during the year may become too optimistic.
• Bank balances are worse than is currently reported.
• Any difficulties in China.
• Problems with government debt (Greece, Spain, Portugal, Ireland, Italy and other)
• US dollar growth and break in the “carry trade” process.
Other global markets
In the developing economies, the beginning of 2009 was marked primarily by a number of crises aimed at stimulating the
national economies. Central banks continued to reduce the base interest rates, while the governments were providing
cashrescue plan, planning increased budget expenditures and through changed tax policies, waived future budgetary
revenue. In November the government of the largest Asian economy, China, adopted aid package of nearly US$ 600 billion,
which accounts for nearly 15 percent of its gross domestic product, with a view to primarily increase expenditure for
infrastructure construction and modernisation, reduce taxes and provide welfare aid to the poorest. The global crisis was a
strong signal to China that it will have to change its GDP structure, increase the share of domestic consumption and reduce
its dependency on imports. In spite of a widespread scepticism that prevailed at the beginning of 2009, it is clear today that
in 2009, Chinese economy with its 8.7 percent growth in GDP, was the main driving force behind the global economic revival.
Despite low exports, by fiscal and monetary measures China succeeded in making domestic demand the principal driver
behind economic growth. With almost no exceptions, in 2009 central banks in developing economies reduced interest rates
and some also reduced obligatory reserves which commercial banks have to ensure.
31
The KD Group Annual Report 2009
In India, successful parliamentary elections contributed to growth of the stock market index. At these elections, which lasted
for a month (from mid April to mid May), the leading Congress party were the conclusive winners with 206 seats out of a
total of 543, which is the best election result of any party since 1991. A day after the election results were announced, Indian
stock market, after a few interruptions in trading, recorded an incredible 17 percent growth. With a slight delay, positive news
began to trickle also from the Russian economy which was, due to its high dependency on exports of oil and some other raw
materials, during the economic crisis most affected among the developing economies. The Russian central bank at the end
of September again reduced the key interest rate to give additional boost to the domestic economy. Currently the key interest
rate stands at 8.75 percent.
One of the more piercing measures taken by the Brazilian government in 2009 was without a doubt expansion of its welfare
aid for the poor which is currently provided to over a million of the poorest households. Extensive aid and social reforms are
the reason why countries were able to more or less avoid otherwise expected social unrest and political crisis. The Brazilian
Bovespa index recorded a 121 percent growth in 2009. Towards the end of 2009, capital markets were shocked by the news
of impending bankruptcy of Dubai, but thanks to the intervention of Abu Dhabi, the news was short-lived.
Slovenia and the Balkan markets
Less liquid or marginal markets did not perform well in 2009 in terms of return. Almost all lagged behind the stock market
indices of developed countries and large developing countries. The main reason why these markets are rightly described as
marginal markets is certainly inefficiency of information technology and uncharacteristic deviation from foreign market trends.
On the other hand, these markets are relatively new and investors were more or less restricted to the local or regional areas.
All of the Balkan markets, including the Slovene market, reached their peaks as an example of a stock market boom fuelled
by speculations of takeovers and in terms of its size, it can be compared to that experienced by the technological market in
2009. An important element of fuelling these markets were high global tendencies to taking risks and low interest rates. The
Slovene SBI 20 index rose by 10 percent, Serbian Belex gained 15, Croatian Crobex 16 percent, and Macedonian MBI-10
recorded a 31 percent increase, whereas Bosnian SASX-10 closed at a loss of 15 percent. The region successfully
maintained stability in the most difficult period of the first half of 2009 primarily thanks to support provided by the IMF and the
EU as well as the commitment of all major European banks not to significantly lower their lending facilities. In terms of
currency, the highest depreciation was recorded by the Serbian dinar which lost 10 percent, and which affected positively on
higher cover of imports with exports, stimulated domestic exporters and due to underdevelopment of the economy, there was
a slight effect of imported inflation due to the general deflationary climate in importing partners. Slovenia recorded a
considerable increase in unemployment rate following a fall of some of the giants such as Mura, and there was a
considerable amount of uncertainty with regards to the fall of the domestic real estate market, which did not result in any
significant decline in real estate prices. Based on quarterly results of Slonep the price of one m2 of an apartment in Ljubljana
fell by an average of 3-6 percent, whereas December payout was by 6 percent higher than in the same period of 2008. In
terms of the average annual salary increase in Slovenia, housing prices in Slovenia are slightly higher compared to the
developed Western markets, whereas compared to the real estate prices in East and Central Europe, they are considerably
lower. Based on an average salary, an average Slovene can acquire 4.5 m2 of real estate compared to nearly 10m2 that can
be purchased by an average German house hunter or only 2m2 afforded by the Slovak or Bulgarian citizen. The past year
lead to disintegration of a number of large systems such as: Istrabenz, the Pivovarna Laško Group (whose negative results
burden the Slovene banking system), as well as Petrol. Foreign investments of some of Slovene companies such as
Zavarovalnica Triglav and Intereuropa proved to be less profitable which resulted in limited amount of inexpensive sources of
funds. In spite of low Euribor rate (0.7 percent) bank margins are high due to uncertain faith of the domestic construction
industry, numerous new provisions and continued difficulties in securing external funding.
32
The KD Group Annual Report 2009
Operations of the KD Group in 2009
The KD Group incurred a loss of EUR 44.2 million in 2009. During the year economic crisis at home and abroad deepened
which resulted in an additional write-off of investments in the Group.
Important operating indicators of the Group KD Group:
– Operating revenue of EUR 367.9 million presents a decline of 6 percent compared to the previous
year. In terms of the revenue structure, net revenue from insurance premiums of EUR 330.1 million
account for 90 percent of total revenue,
– At the end of 2009 the value of total assets stood at EUR 847,8 million, an increase of 7 percent
compared to 2008,
– As at 31 December 2009, the Group's capital of EUR 151.6 million presents a 22 percent reduction
compared to 2008.
Important indicators
Index
Indicator 2009 2008
2009/2008
Return on equity (in %) (25.6) (28.8) 89
Equity financing (capital / total assets) (in %) 17.9 24.4 73
Earnings per share attributed to majority shareholders (in EUR)15 (17.1) (29.7) 58
Share book value (in EUR)16 52.70 66.86 79
Market capitalisation / capital book value 17 0.91 0.78 118
15Earnings per share attributed to majority shareholders:
Net profit of majority shareholders – dividend payout on preference shares (excluding treasury preference shares)
The average number of total issued shares excluding treasury shares
16 Share book value:
Capital book value of majority shareholders (as at 31 December 2009)
The number of total issued shares excluding treasury shares (as at 31 December 2009)
17 Market capitalisation / capital book value
Market capitalisation of both share classes (excluding treasury shares) (as at 31 December 2009)
Capital book value of majority shareholders (as at 31 December 2009)
Diluted earnings per share also take into account any granted options, convertible bonds or other similar financial instruments. As the
company issued no such financial instruments this indicator is identical to earnings per share attributed to majority shareholders.
33
The KD Group Annual Report 2009
Highlights from the income statement
Index
INCOME STATEMENT (in EUR thousand) 2009 2008
2009 / 2008
Operating revenue 367,869 391,619 94
Net revenue from insurance premiums 330,130 321,283 103
Net revenue from sales of goods and services 11,621 23,623 49
Commission income 10,849 14,411 75
Other operating revenue 15,268 32,303 47
Net finance income* 45,098 (87,267) -
Operating expenses (431,399) (354,212) 122
Cost of services (68,690) (75,690) 91
Labour costs (57,577) (64,406) 89
Net benefits and claims paid (271,476) (156,842) 170
Other operating expenses (37,762) (57,274) 66
Operating profit or loss (18,432) (49,859) 37
Finance costs (9,564) (8,023) 119
Share of profit/loss of associate (23,427) (27,407) 85
Income tax 7,200 8,286 87
Net profit or loss for the year ** (44,223) (77,004) 57
* The share of profits of associates is not included. Commission income is shown in a separate line.
** Includes the portion of net profit for the financial year attributed to minority owners.
Highlights from the balance sheet
Index
31.12.2008
BALANCE SHEET (in EUR thousand) 31.12.2009 31.12.2009 /
adjusted
31.12.2008
Assets 847,785 795,464 107
Intangible and tangible fixed assets 106,451 104,532 102
Investment property 29,814 28,708 104
Financial assets and investments 374,256 393,268 95
Receivables, inventories and other 131,048 141,681 92
Unit-linked investments of policyholders and reinsurance contracts 165,486 95,970 172
Cash and cash equivalents 40,730 31,305 130
Equity and liabilities 847,785 795,464 107
Equity * 151,605 192,247 79
Liabilities arising from insurance contracts 296,098 279,766 106
Unit-linked liabilities to policyholders 140,109 79,309 177
Investment contracts 17,703 16,394 108
Financial liabilities 196,132 181,909 108
Operating and other liabilities 46,137 45,838 101
* Also includes minority interest.
34
The KD Group Annual Report 2009
Operating revenue
Structure of operating revenue
Operating revenue amounted to EUR 367.9 million in 2009, down 6percent compared to 2008. Net revenue from insurance
premiums, which represents the largest share of total operating revenues (90%), was up 3 percent from 2008 to EUR 330.1
million. Net revenue from sales of goods and services was down 51 percent in 2009 to EUR 11.6 million. The main reason
lies in the sale of the cinematography activity in September 2008, whose relevant amount of revenue was included in the
consolidated revenue. A sharp drop was also recorded in revenue from fees and commissions primarily due to the tightening
of financing conditions. Revenue from fees and commissions was down 25 percent compared to 2008 and stood at EUR
10.8 million. Other operating revenue accounts for 4 percent of total operating revenue.
Operating revenue and changes in 2009 and 2008 (in EUR thousand):
450.000
391.619
367.869
400.000
15.268 32.303 Other operating
350.000 14.411 revenue
Operating income ( in EUR thousand )
10.849
11.621 23.623
300.000
Commission revenue
250.000
200.000
Net revenue from
330.130 321.283 sales of goods and
150.000
services
100.000 Net revenue from
insurance premiums
50.000
0
2009 2008
Sales revenue
Sales revenue18 amounted to EUR 352.6 million in 2009. The majority of revenue was earned by insurance activity (figure
below total property, life and health insurances), accounting for 95 percent of total revenue of the Group.
Structure of sales revenue by business segment in 2009 (in %):
Banking Other
Financial services 0% 2%
3%
Health insurance Property insurance
28% 41%
Life insurance
26%
18 Sales revenue: Net revenue from sales of goods and services + net revenue from insurance premiums + revenue from fees and commissions
35
The KD Group Annual Report 2009
Sales revenue by business segment in 2009 and 2008 (in EUR thousand):
160.000
142.736 137.832
140.000
120.000
Sales revenue in EUR thousand)
100.150 95.961
100.000 90.075 89.509
80.000
60.000
40.000
16.094 12.128
20.000 11.381 7.571 7.793
686 0 0
0
Property insurance Life insurance Health insurance Financial services Banking Cinematography Other
2009 2008
In terms of sales, property insurance leads with EUR 142.7 million followed by health insurance (EUR 100.2 million) and life
insurance with EUR 90.1 million. The first two recorded 4 percent growth, while life insurance recorded 1 percent increase
compared to 2008. Revenue earned by financial services fell on account of lower commissions, whereas cinematographic
sector will probably be sold.
Net finance income from investments
Net finance income from investments reached EUR 45.1 million in 2009. The reason for the higher net inflow was the revival
of stock markets which resulted in an increase of financial assets (financial assets measured at fair value through profit or
loss).
Net finance income from investments by business segment in 2009 and 2008 (in EUR thousand):
60.000
Net finance income ( in EUR thousand)
40.000
20.000 45.098
0
(20.000)
(40.000)
(87.267)
(60.000)
(80.000)
(100.000)
2009 2008
36
The KD Group Annual Report 2009
Operating expenses
In 2009 operating expenses19 totalled EUR 431.4 million, up 22 percent compared to 2008. In the operating expenses
structure, the majority, 63 percent represents net expenditure for insurance entitlements and claims, which recorded a 73
percent increase in 2009, primarily due to increase in liabilities to the unit-linked investments (stock prices growth in 2009
compared to 2008) and thus the increase in long-term insurance provisions. Compared to the previous year, costs of
services which account for 16 percent of total operating expenses, are down by 9 percent, as are labour costs which account
for 13 percent of total costs and which recorded an 11 percent decline. This reduction is due to the disposal of
cinematographic activities and rationalisation of the costs in the Group. Majority of other expenses present revaluation
operating expenses due to impairment of receivables, loans and goodwill.
Structure of operating expenses and changes in 2009 and 2008 (in EUR thousand):
2009 2008
0
Operating expenses ( in EUR thousand )
(68.690) (75.690) Other expenses
(50.000)
(100.000) (57.577) (64.406)
(150.000) Net expenses for
(200.000) claims
(156.842)
(250.000) (271.476)
Labour costs
(300.000)
(57.274)
(350.000)
(400.000) Cost of services
(33.657) (354.212)
(450.000)
(431.399)
(500.000)
Net profit or loss
The Group recorded a net loss in the amount of EUR 44.2 million in 2009.
The tightened financing conditions resulted in the impairment and write-down of some of financial investments. Profits were
generated in 2009 by the health insurance (EUR 3.8 million) and property insurance (EUR 2.2 million). The largest loss was
recorded by financial services (EUR 35 million), followed by life insurance (EUR 10.4 million) and banking sector which
incurred a loss of EUR 3.4 million.
Net profit or loss of the Group in 2009 and 2008 (in EUR thousand):
2009 2008
0
(10.000)
Net profit or loss ( in EUR thousand)
(20.000) (44.223)
(30.000)
(40.000) (77.004)
(50.000)
(60.000)
(70.000)
(80.000)
(90.000)
19 Expenses and costs are shown with a negative sign so that the tables in the analysis of operations are in line with the tables in the financial section of the
Annual Report.
37
The KD Group Annual Report 2009
Net profit or loss by business segment in 2009 and 2008 (in EUR thousand):
Property insurance Life insurance Health insurance Financial services Banking Cinematography Other
10.000 3.808
2.180 1.668
0 0 -110 -490
0
Net profit or loss ( in EUR thousand)
-1.368
-3.418
-10.000
-10.429
-20.000 -13.715
-20.961
-30.000
-34.996
-40.000
-43.396
-50.000
2009 2008
Assets
Total assets of the Group stood at EUR 847,8million at the end of 2009, an increase of 7 percent compared to total assets of
EUR 795,5 million at the end of 2008.
The highest growth was recorded by investments of the insured and reinsurance contracts (72 percent) which is tied to the
growth in stock market prices in 2009. Cash and cash equivalents increased by 30 percent compared to 2008, pointing to an
improved liquidity of the Group when compared to the end of 2008. In terms of their structure, financial assets and
investments which declined by 5 percent in 2009 primarily due to write-offs and impairments, account for 44 percent of total
assets.
Assets and changes in 2009 and 2008 (in EUR thousand):
900.000 847.785
795.464 Cash and cash
40.730 equivalents
800.000 31.305
165.486 95.970
700.000 Unit-linked investments
of policyholders and
600.000
Assets ( in EUR thousand)
131.048 141.681 reinsurance contracts
Receivables,
500.000 inventories and other
400.000 Financial assets and
374.256 393.268 investments
300.000
200.000 Investment property
29.814 28.708
100.000
106.451 104.532 Intangible and tangible
0 fixed assets
31.12.2009 31.12.2008 restatement
38
The KD Group Annual Report 2009
In terms of the structure of assets by business segment, the major share is taken by the insurance segment with 68 percent,
and financial services (25 percent), whereas banking segment accounts for only 5 percent of total assets. All segments
recorded an increase in assets with exception of banking services where due to impairment and write-offs, the assets
declined by 26 percent compared to 2008. The highest growth in assets (34 percent ) was recorded by the life insurance
segment.
Structure of assets by business segment as at 31 December 2009 (in %):
Other
Banking 2%
6%
Property insurance
Financial services 29%
25%
Life insurance
33%
Health insurance
5%
Assets by business segment as at 31 December 2009 and 2008 (in EUR thousand):
350.000
292.170 282.420
300.000
243.796 239.434
250.000
Assets ( in EUR thousand)
218.568
209.467
200.000
150.000
100.000
39.974 38.227 46.752
50.000
15.625 16.363
0
0
Property insurance Life insurance Health insurance Financial services Banking Other
2009 2008
Equity and liabilities
Equity was reduced by 22 percent to EUR 151.6 million at the end of 2009, primarily due to a reduction in capital surplus.
Liabilities to the unit-linked investments rose to EUR 140 million and there was also an increase in liabilities from insurance
contracts which at the end of 2009 stood at EUR 296.1 million. Financial liabilities of EUR 196.1 million represent an 8
percent increase, slightly more than the 7 percent increase of total equity and liabilities.
39
The KD Group Annual Report 2009
The equity independence ratio indicating the share of equity in total liabilities (shown in the introductory overview of ratios)
dropped to 17.9 percent as a result of a decrease in equity. It should be noted that the ratio is low primarily due to the
specific characteristics of the insurance balance sheets which include liabilities arising from insurance contracts within items
of equity and liabilities.
Equity and liabilities and changes as at 31 December 2009 and 2008 (in EUR thousand):
900.000 847.785 Operating and other
795.464
46.137 liabilities
800.000
Equity and liabilities ( in EUR thousnad)
45.838
700.000 196.132 Financial liabilities
181.909
600.000 17.703
16.394
140.109 79.309 Investment contracts
500.000
400.000
279.766 Unit-linked liabilities to
300.000 296.098 policyholders
200.000 Liabilities arising from
insurance contracts
100.000 192.247
151.605
0 Equity *
31.12.2009 31.12.2008 restatement
Business operations of KD Group d.d. in 2009
Significant operating indicators of KD Group d.d.:
– KD Group d.d. ended the year 2009 with a loss of EUR 52.8 million,
– Operating expenses in 2009 reached EUR 7.3 million, a drop of 51 percent compared to the previous
year. The effects of rationalisation were reflected primarily in the reduction of costs of goods, materials
and services (56 percent reduction) and labour costs (26 percent reduction),
– Financial revenue of EUR 8.3 million represents a drop of 84 percent compared to 2008 mainly on
account of lower financial revenue from shares and interests,
– Compared to 2008, financial expenses increased by 24 percent. Deepened economic crisis at home and
abroad resulted in additional impairment and write-off of investments which totalled EUR 54.8 million,
– At the end of 2009, total value of assets reached EUR 336.4 million, a drop of 11 percent compared to
2008,
– As at 31 December 2009, equity of EUR 162.3 million presents a 23 percent reduction compared to
2008,
– Compared to 2008, financial liabilities rose by 6 percent to EUR 168.3 million, accounting for 50 percent
of total equity and liabilities. In terms of financial liabilities, there was a reduction in long-term financial
liabilities to banks, and an increase in short-term financial liabilities to the Group companies.
40
The KD Group Annual Report 2009
Highlights from the income statement
Index
INCOME STATEMENT (in EUR thousand) 2009 2008
2009 / 2008
Gross operating income 501 659 76
Operating expenses (7,252) (12,378) 59
Costs of goods, materials and services (3,025) (6,828) 44
Labour costs (3,636) (4,903) 74
Amortisation and depreciation (536) (453) 118
Other operating expenses (54) (195) 28
Operating profit or loss (6,751) (11,719) 58
Finance revenues 8,262 53,003 16
Finance revenue from shares and interests 6,222 49,240 13
Finance revenue from loans 2,016 3,714 54
Finance revenue from operating receivables 23 49 47
Finance expenses (62,818) (50,675) 124
Finance expenses due to investment impairment and write-off (54,784) (42,088) 130
Finance expenses from financial liabilities (7,805) (8,565) 91
Finance expenses from operating liabilities (228) (22) 1.040
Other revenue 197 7 2.829
Other expenses (0) (295) 0
Deferred tax and income tax 8,283 3,380 245
Net profit or loss for the year (52,827) (6,299) 839
Highlights from the balance sheet
Index
BALANCE SHEET (in EUR thousand) 31.12.2009 31.12.2008 31.12.2009 /
31.12.2008
Assets 336.356 379.611 89
Long-term assets 291.368 323.904 90
Long-term financial assets 271.104 301.716 90
Long-term operating assets 20.264 22.188 91
Current assets 44.988 55.707 81
Short-term financial assets 33.732 47.495 71
Short-term operating assets 11.257 8.212 137
Equity and liabilities 336.356 379.611 89
Equity 162.305 210.917 77
Provisions 21 32 65
Financial and operating liabilities 174.030 168.662 103
Financial liabilities 168.258 158.241 106
Operating and other liabilities 5.772 10.421 55
41
The KD Group Annual Report 2009
Risk management
In times of deepened financial and economic crisis, the Management Board of KD Group is regularly adopting measures that
will to the largest possible extent impact risk management and contribute to the achievement of set goals.
Conditions in the internal and international business environment deteriorated significantly in 2009. Thus the deepening of
the financial turmoil has already been felt in the real sector of the economy. In this situation, risk management at the
company and the Group KD Group was immediately adapted to new conditions. Since the situation does not permit us to
exert excessive influence on the revenue side, we are focused on the more efficient handling of resources, increasing
effectiveness and searching for additional opportunities to exploit synergies.
Strategic risks
KD Banka, which designed the overall risk management strategy, began operating in 2009. It defines, forecasts and
summaries for each individual type of risks the strategies applicable to risk assumption and management, as well as policies
relating to risk assumption and management in conjunction with the internal control system organisation that ensures the
implementation of the strategies. This lays down clearly and transparently the responsibilities, competences, systems and
processes from the Management Board, executive officers up to the senior management and all those involved in the risk
management system.
Strategic risks that affect the long-term development of the Group include the risk of a loss due to incorrect and/or untimely
business decisions made by the Group companies, inappropriate implementation of the adopted decisions, and insufficient
response of the Group companies to changes in the business environment. This is of exceptional importance particularly in
such major changes in business environment as has been witnessed recently by the majority of global economy. In these
conditions risks should be managed by implementing and regular monitoring of the appropriateness of the Group's
strategies, their implementation and timely response to changed business circumstances.
Due to highly diversified activities of the companies owned by KD Group, investment decisions taken in individual segments
continue to be of key importance. Therefore, the managing and governing system is continually adjusting to the external
changes and the development of individual segments, as well as to the achievement of target returns.
General business risk
Our activities and decisions have no impact of the wider economic environment or relevant legislation. Thus risks are more
difficult to measure and model. We manage these risks by regularly monitoring legislation, capital markets and
macroeconomic parameters. Amendments to legal regulations that significantly affect our business environment are quite
frequent and complex. A series of legislative changes have occurred in Slovenia and the countries of South Eastern Europe
in the past year that have affected our key areas of operations and required numerous activities to adapt them.
Financial risk
The primary purpose of financial risk management is to achieve stable operations and reduce exposure to specific risks to an
acceptable level. The Group is highly exposed to financial risks through its financial assets and liabilities, reinsurance
receivables and insurance liabilities. The possibility that inflows from financial investments will not be sufficient to cover
outflows from insurance contracts represents the main risk, as well as the risk that, at a given moment, other companies will
not have sufficient funds to settle their current liabilities or to maintain current operations. Given that most companies in the
Group are involved in regulated activities, this area is already controlled to a large extent by observing legislative provisions.
The most significant components of financial risk are changing interest rates and securities prices, and currency and credit
risk. It became clear in the most recent period that financial risk and its management are of key importance for the
achievement of set objectives. Therefore, we continuously plan and monitor cash flows and attempt to proactively ensure the
stability of our operations.
The risks related to market risk management are managed independently by Group companies using methods linked
primarily to the legal aspects of specific industries and may vary significantly by individual divisions. Group companies
monitor and manage market risks from investments in financial instruments by carefully selecting the sector and
geographical composition of investments. In the segment of asset management, market risks are monitored, assessed, and
42
The KD Group Annual Report 2009
managed by using quantitative methods of risk assessment compared to the selected returns criteria. In accordance with the
Insurance Act, insurance companies are obliged to match long-term business fund investments with their liabilities arising
from insurance contracts, the amount of which depends on changes in exchange rates, interest rates and securities prices.
The method of managing these risks and exposure thereto are presented in detail in the financial section of the consolidated
Annual Report.
Operational risk
Operational risk (including legal risk) is the risk of loss arising primarily due to inadequate or incorrect implementation of
internal controls, other inappropriate conduct by personnel involved in the company's internal operations, inadequate or
incorrect functioning of systems that relate to the company's internal operations, and external events or acts. Operational risk
also includes IT risk, which is the risk of data loss resulting from inadequate information technology and processing,
particularly in terms of manageability, access, integrity, supervision and continuity. Operational risk is managed by
companies by identifying opportunities and threats in their respective areas and by managing business processes. The
management of these risks is subordinate to the strategic and business objectives of individual segments and companies.
In all larger KD Group companies, we manage operational risk by introducing ISO standards (at companies where this
makes sense due to the complexity of processes) and using standard software for accounting and investments. Risks are
also mitigated by a standardised system of annual planning and monthly reporting that provide the parent company with
information about the operations of subsidiaries in a timely manner. In this regard, the new planning model facilitates flexible
planning and contributes to the monitoring of established objectives and the timely adoption of measure in the context of a
change in assumptions.
The internal audit department has been particularly diligent with regard to signs of fraud in all previously performed internal
audits. In this respect, the internal audit department assesses the probability of fraud arising. Any deviations are reported in
the scope of individual internal audit reports. Risks of improper conduct of people, in the context of increased pressures on
employees as a "by-product" of the current turmoil, may also be seen as the increased risk of fraud, common in the
international environment. Therefore, time has been reserved in the proposed plans of the internal audit department for
2010 to raise the awareness of our employees. Plans include training on the subject of recognising indicators or signs of
fraud.
Insurance risks
Within the framework of insurance risk, the operations of insurance companies are exposed to underwriting process risk,
product design risk, pricing risk, economic environment risk, policyholder behaviour risk, reserving risk and claims risk.
In view of the above, and the nature of insurance contracts, where insurance risks are random and unpredictable, insurance
companies in the Group have developed their own policies for concluding insurance contracts in order to diversify the
assumed risks. Measures taken in order to manage insurance risks are as follows:
– risks that exceed a predetermined amount are transferred to a reinsurance company;
– diversification of assumed risks and achieving sufficient number of risks in individual categories to reduce
variability of anticipated results (diversification and portfolio increase),
– parameters defining the insurance premium are assessed adequately when new insurance products are
developed;
– effective implementation of internal controls,
– creation of appropriate amount of provisions,
– monitoring and analysing changes to ensure timely and proactive measures.
Details regarding the distribution of maximum loss (maximum insured sum) by the sectors in which policyholders operate and
the diversification of the insurance portfolio (exposure to the largest policyholders) are disclosed in the financial section of the
Annual Report.
43
The KD Group Annual Report 2009
Human resource risk
The risks in this area are carefully managed at the Group level and directly through individual companies in the Group, as
employees are the key to our success. To mitigate the risk of excessive employee turnover, we educate and train our
employees, attend to the working environment and general employee satisfaction, organise meetings of all employees,
stimulate affiliation with the Group, strengthen the social security of employees with additional insurance, and by
implementation of modern human resource policies and practices in line with the adopted human resource vision and
strategy.
More information about employees is included in chapter Human resources and their development.
Reputation risk
A potential loss due to a negative corporate or Group image is difficult to measure and even more difficult to correct. We
maintain and augment the Group's reputation and boost the value of our brands in the eyes of our customers, business
partners, owners, investors and regulators through good performance and by managing all other risks. We constantly
communicate with the community and financially support numerous cultural and sporting events, and humanitarian
campaigns.
IT-related risk
We constantly introduce new information support for work process at all companies in the Group. We manage this process
through an appropriate organisational structure, the inclusion of specialist departments, internal auditing, diligent testing and
project management. In 2009, the information systems of Group companies functioned well, without major interruptions that
would have a significant impact on the company's operations.
Legal risk
Legal risks form an integral part of operational risks. We define these risks as a behaviour, the consequence of which is the
legally justified intervention of a third party in the company's operations that causes it material or moral damage. This could
arise as a result of violations of regulations, internal instructions, professional recommendations, contracts, good practices or
ethical standards. These risks are managed through the adoption of internal rules of operation aimed at reducing the
probability of harmful consequences and preventing actions caused by such circumstances. The legal function is integrated
into the adoption of business decisions, providing for the timely detection of legal risks.
Incidental risk
Incidental events are quite rare but may have severe consequences for operations. The company protects itself against
incidental risk through insurance or reinsurance contracts.
Risk related to securities issued by KD Group d. d.
The holders of securities issued by KD Group d. d. are exposed to the following risks:
- Market risk: shares and bonds are sensitive to changes which the issuer cannot influence such as changes in the
economy or legislation, crises, and natural and ecological disasters.
- Liquidity risk: the risk of a security holder not being able to sell a security or only being able to sell it at a lower price
owing to insufficient demand.
- Credit risk: the risk of the bond issuer failing to pay interest and principal.
KD Group d. d. can only influence the exposure to credit risk by managing other risks and thus influencing the stability and
long-term growth of the Group.
44
The KD Group Annual Report 2009
Internal audit
In 2009, the internal audit department, as an active member of the internal control system, helped the company and the KD
Group achieve established objectives by stimulating a prudent and regulated method of evaluating and improving the
effectiveness of procedures for controlling and managing risks and thus contributed to the generation of added value by
providing independent and impartial findings and serving in an advisory role. In 2009, it also directly verified whether the
internal control system is established, if it functions and whether it is effective in its objective to continue ensuring the legality,
security, effectiveness and efficiency of operations and the protection of assets. Furthermore, the internal audit department
was responsible for improving risk management and the recognition of the internal audit department within the Group by
carrying out individual audits, through its advisory function and by organising training for all Group employees.
Based on the internal audit department's strategy adopted in 2007 and uniform rules on internal audit planning and reporting,
the internal audit department amended and expanded general internal audit rules in 2009 with the aim of achieving
standardised actions, greater efficiency and the success of the internal audit function at the Group level. This led to adoption
of a revised Document on the internal audit function. The revised document was drafted as a result of substantial
amendments to the binding internal audit standards and changes in the management of KD Group d.d. (one-tier system) and
represents the minimum standard applicable to the Group. Furthermore in 2009 we adopted the Policy of cooperation and
development of the internal audit function of the KD Group with a view of utilising synergies, harmonisation, and with an aim
of sharing the knowledge and best practices among internal audit services which are, in terms of their status and
organisation, part of an independent and decentralised system.
At the Group level, internal audit function is uniform to the extent that ensures that internal audit of the KD Group in individual
subsidiary is involved in the selection of internal auditors, in annual preparation of plan of work, and in monitoring the
implementation of recommendations and reporting in a manner that, in accordance with the professional recommendations, it
acts as a coordination unit, and is charged with the development of standard internal audit methodology and general
development of the internal audit function within the Group. The professional qualification of internal audit department
employees is appropriate. Two internal auditors employed at KD Group d. d. are experienced in the areas of external and
internal auditing and hold the relevant titles as bestowed by the Slovenian Institute of Auditors (certified internal auditor and
certified accountant), as well as internationally recognised (CIA) and other titles (state internal auditor and state auditor).
In 2009 we continued to carry out surveys of the audit subjects after completion of the internal audit (i.e. following a
consolidated and final audit report). Based on the survey we drafted a plan of activities aimed at additional increase in the
satisfaction of audit subjects and at raising internal audit's added value.
Human resources and development
At the Group KD Group we are aware that our employees are our important asset and investment for the future. With this in
mind we devoted much effort into development, education and primarily promotion of innovative potential of our employees
in all segments and at all levels of the Group. Therefore, we have specified what human resource management means and
also redefined new roles of HR leaders as the key holders of the HRM function. Moreover, the Management devotes much
attention to monitoring, measuring efficiency and particularly improving and upgrading the manner of work. We should also
highlight the even more important role of internal communication and to this aim the most senior management of the Group
was introduced and maintained dialog with all the employees.
Within the framework of human resource strategy, we designed the concept of centralised HRM. Furthermore we redesigned
and underlined the human resource management vision and mission and established its strategic goals.
Key strategic goals of human resource management of the Group KD Group remain unchanged from one year to the other
as these are of key importance for implementation of our vision. These goals include efficient HR organisation, interaction
and orientation towards common goals, activities that are consistent with values, inter-cultural cooperation and employee
mobility, excellent system of employee remuneration and motivation, as well as recognition in terms of professional
competence and innovation of employees.
45
The KD Group Annual Report 2009
Number of employees
Average
31.12.2008 Index 31.12.2009 number of
Company 31.12.2008 31.12.2009
(share in %) 2008/2009 (share in %) employees
in 2009
AS division
Adriatic Slovenica d. d., Koper 1,033 53.00% 1,006 103 56.52% 1,020
AS Neživotno osiguranje, Beograd 15 0.77% 49 31 2.75% 55
Life insurance division
KD Življenje, zavarovalnica, d. d. 156 8.00% 181 86 10.17% 176
KD Životno osiguranje d. d., Zagreb 17 0.87% 42 40 2.36% 31
KD Life AD, Sofia 49 2.51% 32 153 1.80% 36
KD Life Asigurari, S.A., Bucharest 37 1.90% 43 86 2.42% 43
KD Life d. d., Kiev 51 2.62% 15 340 0.84% 37
SC KD Fond De Fond SA Bucharest 8 0.41% 7 114 0.39% 8
ZAP d. o. o., Murska Sobota 0 0.00% 0 - 0.00% 0
World Life Group, Limassol - - 0 - 0.00% 0
Vitavizia, Vipava - - 0 - 0.00% 0
KD Finančna točka d. o. o., Ljubljana 155 7.95% 60 258 3.37% 96
KD Finančna točka d.o.o., Bucharest 3 0.15% 0 - 0.00% 2
KD Financial point, s.r.o., Bratislava 2 0.10% 0 - 0.00% 0
KD Finančna točka d. o. o., Zagreb 0 0.00% 0 - 0.00% 0
KD Finančna točka d.o.o., Bulgaria - - 3 - 0.17% 0
KD Mark, d. o. o., Ljubljana 2 0.10% 2 100 0.11% 2
Financial operations division
KD Group d. d., Ljubljana 77 3.95% 48 160 2.70% 50
KD Skladi d. o. o., Ljubljana 59 3.03% 43 137 2.42% 43
KD Investments d. o. o., Zagreb 34 1.74% 12 283 0.67% 17
KD Investments a.d., Beograd 12 0.62% 3 400 0.17% 7
KD Fondovi ad Skopje 4 0.21% 7 57 0.39% 7
KD Investments EAD, Sofia 11 0.41% 8 138 0.45% 9
SAI KD Investments, Bucharest 8 0.56% 8 100 0.45% 8
KD Fund Advisors, LLC 0 0.00% 0 - 0.00% 0
ABDS d. d., Sarajevo 7 0.36% 7 100 0.39% 7
Coloseum Multiplex Holdings b.v., Amsterdam 0 0.00% 0 - 0.00% 0
Gama Holdings b.v. Amsterdam 1 0.05% 1 100 0.06% 1
KD Asset Management b. v. Amsterdam 0 0.00% 0 - 0.00% 0
Manta Marine 0 0.00% 0 - 0.00% 0
VIB a.d., Banja Luka 3 0.15% 3 100 0.17% 3
KD Private Equity d. o. o., Beograd 1 0.05% 1 100 0.06% 1
Firsthouse Investments Itd., Cyprus 0 0.00% 0 - 0.00% 0
Kredo Group, Taškent - - 2 - 0.11% 0
Sarbon Invest, Taškent - - 2 - 0.11% 0
Banking division
KD Banka d. d. , Ljubljana 35 1.80% 52 67 2.92% 50
KD Capital Management S. A., Bucharest 14 0.72% 6 233 0.34% 8
KD Securities EAD, Sofia 13 0.67% 2 650 0.11% 5
KD Upravljanje imovinom d. o. o., Zagreb 8 0.41% 8 100 0.45% 8
Capital investments and real estate division
KD Kapital d. o. o., Ljubljana 8 0.41% 7 114 0.39% 7
KD Kvart d. o. o., Ljubljana 7 0.36% 8 88 0.45% 7
Gea College CVŠ d. o. o., Ljubljana 4 0.21% 4 100 0.20% 4
Gea College d. d., Ljubljana 6 0.31% 5 120 0.26% 5
Gea College PIC d. o. o., Ljubljana 5 0.26% 4 125 0.21% 4
ČZD Kmečki Glas d. o. o., Ljubljana 34 1.74% 30 113 1.69% 32
Fontes Group d. o. o., Beograd 0 0.00% 0 - 0.00% 0
FM-NET , Ljubljana - - 0 - 0.00% 0
Radio Kranj, Kranj - - 9 - 0.52% 9
R.E. Invest d. o. o., Ljubljana 1 0.05% 1 100 0.06% 1
Vrtnarstvo Celje d. o. o., Celje 69 3.54% 60 115 3.37% 68
The KD Group 1,949 100.00% 1,780 100.00% 1,860
46
The KD Group Annual Report 2009
The Group had a total of 1,780 employees at the end of 2009, a decrease of 8.7 percent compared with 2008 (1,949
employees). Reduction in employment is primarily due to optimisation of operations in KD Finančna točka, to certain extent
in KD Skladi and in companies located abroad. In accordance with the project for establishment of KD Banka, a number of
employees were transferred from KD Group d.d. into the newly established KD Banka. No other more significant changes in
human resources occurred in the Group KD Group in 2009.
Employee age structure in the Group KD Group
Employee age structure in the Group KD Group as at 31 December 2009
compared to 2008
over 56 years 3,46
3,81
51-55 4,20
8,39
46-50 10,37
12,78
11,36
Age category
41-45 13,78
2009
36-40 17,53
15,31 2008
31-35 26,67
18,74
26-30 20,74
19,07
21-25 5,93
7,77
under 20 years 0
0,33
0 5 10 15 20 25 30
Percentage of employees
In 2009, the majority of the Group's employees were young, perspective and, above all, educated personnel. The largest
group of employees (26.67%) were those between 31 and 35 years of age.
Educational structure of employees in the Group KD Group
Educational structure of employees in the Group KD Group as at 31
December 2009 compared to 2008
0,49
PhD 1
5,19
Master's degree 8,54
Educational category
46,67
College or university 31,76 2009
9,88 2008
Higer education 12,21
35,8
Secondary school 39,48
4,69
Primary or vocational school 7,01
0 10 20 30 40 50
Percentage of employees
In 2009, the Group primarily employed persons with a higher educational level. The share of employees with a higher
educational level was 46.67 percent, whereas employees with secondary school level accounted for 35.8 percent of total
staff.
47
The KD Group Annual Report 2009
Training and employee development
We look upon investment in the knowledge of our employees as investment in the future of the KD Group. Therefore we
systematically invest in increased professional competence, general work competences and innovation of our employees. In
2009 this was achieved through education, training and particularly through internal transfer of knowledge.
Supporting formal education and training
At the Group KD Group, we provide support and encourage our employees to continue education to achieve a higher level of
formal education. To this aim we fund education and provide additional study leave for all employees who decide to pursue
further education. We are aware that through formal education and increased level of education, we will ensure new
knowledge, modern practices and latest information flowing to the Group.
Internal transfer of knowledge
In 2009 we strived to further establish the concept of internal education and to include all potential internal tutors in the
process of continual education in individual professional areas as well as in general. We ensured uninterrupted transfer of
knowledge between employees with the help of modern technology, and particularly through audio and video technology and
we have begun establishing our internal knowledge base. The knowledge transfer was based primarily on the working
system of learning using the Dschool method, and involved all employees in the workshops according to their competences
in individual work areas.
Additionally we strived to build up our internal library to promote knowledge transfer and self-learning process of employees.
Monitoring job optimising and employee remuneration
The Group KD Group is aware that efficient system of success recognition and remuneration is an extremely important
element of human resource management towards their satisfaction and commitment.
Employee remuneration
Currently we are upgrading the complete system of employee remuneration at the Group level to promote success,
entrepreneurial spirit and innovation of our employees. As we are also aware of the power and importance of non-financial
remuneration, we have deliberately supported recognition of achievements of individuals with suitable commendation
whenever appropriate.
Care for our employees
As the Group is active in the services sector, we are well aware of our strong dependency on satisfied, committed and
motivated employees as it is only through them that we can satisfy the needs and aspirations of our stakeholders – business
partners, customers and owners. .
Attention to our employees
In 2009 we again surprised our employees with small tokens of appreciation at their job positions such as gifts and greetings
cards on major celebrations and events, Christmas gifts for children and organisation of “The First Day of School” We also
made it possible for our employees to participate at a variety of cultural events, concerts and other events. Special attention
was devoted in 2009 to all those who have been with the Group for a number of years to show our appreciation for their
commitment and loyalty.
Developing a close-knit working group
Our employees actively participated and socialised in the “Kaj Dogaja” sports club and organised the fifth, now traditional KD
Bowling Challenge. In addition we organised a number of teambuilding events where in addition to gaining new knowledge,
employees were able to get to know each other better and socialise at a number of internally organised workshops and
meetings organised with the most senior management.
Charity and solidarity
We would like to point out that the employees of the Group KD Group in 2009 again regularly attended blood donor
campaigns and by donating little something of our own we contributed to the wider social community. We also assisted in
education and promotion of charity work with the younger generation.
Health and safety at work
At the Group KD Group we strive to ensure optimum and pleasant working environment for all employees. In 2009 we again
provided safe and appropriate working conditions and pleasant working environment. We regularly monitored and continually
improved the quality of food served in our KD restaurant. At request of our employees we included vegetarian dishes on the
menu and continually improved selection of dishes as we support and encourage our employees to pursue healthy life styles.
48
The KD Group Annual Report 2009
In the autumn of 2009 we organised vaccination against seasonal and pandemic flu and carefully followed health
organisations' guidelines concerning preventive health measures.
Optimisation of operations
The Group felt the impact of international economic and financial crisis and its consequences. Much of our energy and
knowledge was directed to specifying the role, organisation and holders of HR function of the Group. With a view of
optimisation of operations we began the project of centralisation of the human resource division and introduced our own
concept of HRM administrators. We continued with the introduction of a contemporary HR information system based on the
»know-how« and which we will use to increase the transparency of HR processes, optimise them and provide IT support. In
addition this will give us an overall view of the human resource statistics of the Group.
Recognition on the labour market
In 2009 we strongly encouraged internal communication at the Group level, while we exercised more restraint in
communication with the wider public and the labour market. Our aim was to strengthen our internal resources, optimise our
strengths and grow so that in future years we can again actively take our position in public and on the markets. The HR
vision remains unchanged as the KD Group strives to become the best employer for all our employees and to be recognised
as such also by the labour market.
RESEARCH AND DEVELOPMENT
In the insurance segment, the Group has been active in the development and modernisation of our range of insurance
products and assistance services, expansion of our sales network, development of modern information technology solutions
and safe and high quality services in all business segments. In KD Življenje insurance company we introduced two new life
insurance products in 2009: “Fondpolica Maks Garant Plus” and whole life insurance “Življenjski kasko”, and improved life
insurance policy »Fondpilica« by offering additional investment possibilities as well as the option of a wide selection of
additional insurance products. By doing this we can ensure that we remain innovative and closely follow the needs of our
target groups. In addition to product development, we actively pursued the development and adjustment of products for the
demands of foreign markets. In 2009, KD Življenje continued processing its portfolio of existing insurance clients in order to
improve and supplement existing insurance contracts. The process began in the last quarter of 2008 at the beginning of the
global financial crisis. As part of the upgrading of the information system supporting life insurance products, in 2009 KD
Življenje successfully implemented new information system Amarta.
Adriatic Slovenica insurance company in 2009 actively pursued development of property and health insurance products. As
the leading Slovene health insurance provider, Adriatic Slovenica improved its wide range of products while in terms of life
insurance products, efforts were devoted primarily to the establishment of sales and after-sales services. In addition it
launched a completely new property insurance “Dom AS”, which allows for insurance of all the property under one insurance
policy, has a comprehensive range of extensive assistance services , and represents an important new development and a
sales winner on the Slovene market. In the field of motor insurance Adriatic Slovenica designed new motor third-party
liability insurance for the young drivers with fewer than three years of driving experience. This is a novelty on the Slovene
market as is the new cover – option to surrender the first damage when underwriting motor liability insurance. Another new
development is a long-term accident insurance of pre-school children and school children and liability insurance for members
of management bodies where individuals can insure personal liability. Renewed “above” standard health insurance offers
extensive existing cover in addition to a completely new coverage – medical procedures which are part of a one day
treatment, endoscopy and tissue and cell tests. Alongside these developments, the company focused its efforts on the
development and adaptation of property and health insurance to fit the Serbian market where a new subsidiary »AS
neživotno osiguranje« began operating in September and who, in its first year of operations, gained almost 1 percent of total
Serbian insurance market, and at the end of the year, 2.5 percent share of motor third-party liability. Adriatic Slovenica
pursued development of its own market network through new representative offices and additional marketing channels, whilst
at the same time expanding marketing network in Serbia with establishment of a new business unit and two representative
offices in 2009. Today AS neživotno osiguranje operates in four branches and two offices. Adriatic Slovenica succeeded in
preserving, strengthening and continually improving the quality of its insurance products and services thus increasing
operating safety. The company successfully concluded the first stage of an extensive project of developing ASBI data
warehouse, which allows its users (at various levels) fast access to uniform and quality information for decision-making
process. The company is quickly transferring to a system of paperless, electronic data storage.
Changed business conditions on the market as a result of financial and economic crisis required from companies in the
segment of Investment fund management to continue with the process of business rationalisation and optimisation, while
at the same time focusing on improving quality of existing services and developing new products, increasing business safety,
improving quality of management services and ensuring simplified operations for the investor.
49
The KD Group Annual Report 2009
KD Skladi, Ljubljana and KD Investments, Zagreb, have launched new websites. KD Skladi upgraded its website with new
user tools (investment computer, investor profile) and, as the first Asset management company in Slovenia, introduced video
comments.
The companies in this division were active in the development of risk management and information technology,
methodologies and organisation as a response to amended relevant legislation and pursued development of sales
techniques and new sales channels.
In the beginning of 2009, KD Skladi introduced new Internet service for its investors - web-based office KD Skladi.net, where
investors have free and safe access to their accounts in the selected KD Skladi funds. We continue development of
information support to our operations and modern services for our investors to provide online access to individual funds.
KD Skladi was among the first asset management companies in Slovenia to transform all of its 17 mutual funds into sub
funds of the KD Krovni sklad.
In cooperation with Concorde Premoženjsko svetovanje, KD Skladi develops new savings plan VIP plus 100 and VIP 100
Premium.
Investors (natural persons) in KD Skladi are able to make monthly payments through direct debit system.
With a view of facilitating operations of investors, reducing investor documentation and making it easier to complete
accession forms for several sub funds simultaneously, a new project »single accession form« was launched.
KD Skladi began implementation of the Charles River order management IT system, support system that will allow for more
efficient management (improved supervision, improved transaction implementation, introduction of derivative securities and
better understanding of added value), and most of all, reduce operating risks.
Year 2010
In future we will continue to direct our activities in the development of products in accordance with industry trends and sales
network initiative ( development of savings accounts and baskets of funds), whilst at the same time endeavour to upgrade
and improve the existing products and services.
We continue to develop friendlier and simpler modern business methods using the Internet. Our web-based office KD
Skladi.net will be improved to allow investors not only to check the balance and monitor transactions, but also to gain access
to funds and online services.
Websites of the companies in the division will be upgraded with new contents and tools.
In 2010 we intend to continue with activities related to the launch of a new distribution channel – newly established KD
Banka, primarily by utilising product and sales synergies.
Our aim for 2010 is also to complete the implementation of the Charles River IT system.
In the Banking division, 2009 was marked by the development of banking infrastructure, products and sales channels,
based on identified needs of (potential) clients, development opportunities, activities of our competitors, development trends
and amendments to legislation. Much effort was devoted to setting up the basic banking applications and integrating the
bank in interbanking connections, developing commercial banking products and electronic banking, which provides a
number of novelties and advantages. Online banking which KD Banka introduced for its first users in November 2009, was
one of the first in Slovenia to combine services of commercial and investment banking. Particular attention was devoted to
the online banking safety in the information environment of KD Banka. In 2009, we developed a number of banking products
for retail and corporate clients. Priority was given to solutions that directly impact either profitability of a client, product or
sales channels, or customer satisfaction. Existing products offered by private and investment banking was supplemented by
above-standard products for the mass market. The bank offers a variety of deposits, savings accounts, transaction accounts
for corporate clients, personal accounts, credit card transactions, credits and other banking products and services that
supplement the existing products and services of KD Banka. Within the framework of asset management and financial
analyses we continued training and educational courses to obtain CFA certificate, all analysts and fund managers are
involved. As high-class banking professionals are one of the prerequisites for successful operations, in 2009 we continued
with strengthening professional knowledge in the area of private banking. Private and personal banking clerks attended an
intense seminar on asset management of clients with above-average high net value and obtained DC Gardner Training
certificate for private banking. DC Gardner Training is one of the world's leading companies involved in specialised
education and training of private financial advisors. In the second half of 2009, KD Banka organised a number of training
courses in banking services for financial advisors of KD Finančna točka.
50
The KD Group Annual Report 2009
CORPORATE SOCIAL RESPONSIBILITY OF THE GROUP KD GROUP
The KD Group is an active partner that encourages, is involved and strives to improve environment in which we work and
live. We encourage or clients to assume responsibility for their own financial safety and independence. We create safe,
pleasant and stimulating working environment for our employees and encourage mutual cooperation and interaction.
Through national and local sponsorship and humanitarian projects we are actively involved in social environment as we
believe that this allows us to contribute to the implementation of values in which we firmly believe.
EMPLOYEES
The Group is aware that our employees are our key assets and investment in the future. To this aim we invested much
energy and efforts into the development, education and particularly encouragement of innovative potential of employees in
all areas and at all levels of the Group. The Group KD Group stimulates and encourages employees to pursue a higher level
of formal education and we made special efforts to promote the concept of internal training and included all potential internal
instructors in the process of continued education on individual specialised areas as well as at the general level. In 2009, we
again delighted our employees with expressions of gratitude and giving gifts at major celebrations and events, Christmas
gifts for children, organisation of the “First day of School” and supported our employees' participation at a variety of cultural
events and visits to concerts and events. We organised the fifth, now traditional KD Bowling Challenge, a number of
teambuilding events and meetings and took part in blood drives. More detailed information regarding employees and
employee care is provided in the section Human Resources and Development.
NATURAL ENVIRONMENT
The principle activities of Group KD Group companies are not directly linked to environmental impacts. However, in our
everyday activities we act responsibly by saving electricity and separating waste. We also consider the environmental aspect
in our investments. Thus in 2006, KD Skladi, Ljubljana established KD Nova energija (KD New Energy), an equity mutual
fund that primarily invests in companies in the renewable energy sector.
SOCIAL ENVIRONMENT
We are actively involved in the local community through sponsorship activities and donations, which communicate a clear
link to our corporate values of trust, growth, respect, excellence and support.
CULTURE AND EDUCATION
The Group has cultivated long-term partnerships with cultural institutions and with individuals and has invested in a number
of educational projects. In 2009, we continued our work with the RTV Slovenija Symphony Orchestra. The guiding principle
of this sponsorship activity is "the harmony of cooperation". We were again involved as sponsor in the P.A.R.A.S.I.T.E.
Institute competition for the OHO Group prize for the young visual artist and supported the Cerkno Jazz Festival and the
Comedy Days at Celje Public Theatre.
KD Življenje continued its partnership with the Ljubljana Puppet Theatre, which began back in 2005. On the occasion of
Theatre's 60th anniversary, in cooperation with the Anna's Fund which has for a decade supported large families to improve
their quality of life, families with more than six children were given free tickets to see the puppets show. In cooperation with
the Zveza prijateljev mladine (Association of Friends of Youth) they provided free entry to puppets shows for large number of
under-privileged children from around Slovenia to try to reduce their distress and bring a smile to their faces.
In 2009, KD Življenje continued its partnership with the Ljubljana Zoo. They supported the »Bear Day« to raise awareness of
endangered wild animals in Slovenia and Europe and which was organised by all zoos, members of the European
Association of Zoos and Aquaria (EAZA). In the scope of long-term cooperation, we supported the project »Arrival of
Mischievous Friends to the Zoo« which provided new, larger and more modern habitat for four Saimiri Monkeys who arrived
from the Gaia park in the Netherlands. Their arrival of the Samiri Monkeys was celebrated by a family event organised in
celebration of the World Animal Day.
In 2009, KD Življenje again organised a major family event at Postojna Cave called Day of Culture and Attractions. We also
cooperated with Iskreni.net as co-organiser during the Festival of Families at Postojna Caves.
51
The KD Group Annual Report 2009
Upon its entry on the market and under the private banking trademark KD Privilege, on 16 September 2009 KD Banka
organised a professional event with a foreign speaker – then current Nobel prize winner for economy - Professor Paul
Krugman. The event attracted over 600 of prominent guests from economy, politics, academic life, professional public and
media, and received a wide response in Slovenia. As a sponsor, KD Banka participated at a charity event “Easter Yacht Ball”
in hotel Kempinski in Portorož and at a charity Rotary-Lions golf tournament.
Adriatic Slovenica insurance company continually recognises and responds to the needs of environment and is striving for
sustainable development of local and wider social environment. In 2009, it was again actively involved in numerous activities
and events organised by a variety of organisations, institutions, associations and societies, thus contributing to the
implementation of initiatives and ideas. At this level the company participates on projects where, in line with the business
policy, it participates as a sponsor or donator. Traditionally, the company supports projects from the field of health,
education, culture, sport and traffic accident prevention. In the field of culture, education and nature preservation, Adriatic
Slovenica's most important cooperation include those with Stud Farm Lipica, Auditorium Portorož, Koper Theatre (who is
celebrating its first centenary in 2010 and which Adriatic Slovenia has supported since its establishment), and Ljubljana
Festival.
Sport
Our support for a variety of sporting activities is aimed at spreading the idea of the active and sociable enjoyment of free
time. The Group has supported the Slovenian Chess Federation for several years in an effort to promote professional and
amateur chess in Slovenia. In 2009, KD Group supported the Slovenian Gymnastics Association on the occasion of the 42nd
Šalamun Memorial – World Cup in Men’s and Women’s Artistic Gymnastics, and the event organised at the 50th anniversary
of establishment of the Sorica Hunting Club.
Both, Group KD Group and KD Življenje were sponsors of International bridge tournament organised by the Bridge club
Tivoli. KD Življenje also sponsored Sports Club Twist Nova Gorica, Ski Association Bohinj and Sports Club Poskokec. In
addition to the insurance company KD Življenje, KD Finančna točka also participated as sponsor of various sports projects.
Both companies sponsored KD Finančna točka Cycling Club Radenska, Marathon Franja and the Franja mini-marathon,
Family marathon and many other cycling events. KD Finančna točka also sponsored Olimpija Swimming Club.
In October 2009, KD Skladi participated as one of the sponsors at the 14th Ljubljana Marathon and gave special awards to
the most senior participants in the marathon and half-marathon.
Adriatic Slovenica's support to sports is diverse however the majority of support has been give since 1993 to top athletes and
Olympic representatives, in cooperation with the Slovenian Olympic Committee. One of recipients of its support is Vasilij
Žbogar, a sailor from Izola who won a gold medal at the Athens Olympic games. In 2009, Adriatic Slovenica supported the
promising swimmer Matjaž Markič who won a gold medal at the European Championships. For the ninth consecutive year
Adriatic Slovenia is the proud sponsor and official insurance agency of the Slovenian Football Association. A variety of
sports, societies, clubs and events are sponsored by Adriatic Slovenica. Among higher profile events, we also supported the
Slovenia Open women's tennis tournament.
Humanitarian activities
The Group KD Group supports the volunteer efforts of its employees. We therefore include them in various humanitarian
activities via KD Fundacija. We also organise blood drives in which an increasing number of employees participate.
In 2009, KD Skladi again, for the second time participated in the humanitarian campaign “So lahko otroci boljši od borznih
gurujev? “ (Can kids be better than stock exchange gurus?), organised by the magazine Moje finance. The aim of the
campaign was to help children from poorer families.
The main focus at Adriatic Slovenica remains the support of healthcare. In the field of health insurance we closely cooperate
with the providers of healthcare and support education and initiatives that contribute to the development and reputation of
medical profession. As the principal sponsor, we again supported the national My Doctor campaign, supported the two
Health centres in Piran and Koper, the Izola General hospital, and assisted in organisation of International Congress of
Medical Experts. We also assisted Park Škocjanske jame in the purchase of new automated defibrillator for visitors in the
event of sudden nausea or cardiac arrest. We continued UNICEF Slovenia's Safe Points project in 2009, thus contributing to
greater safety for children and adolescents in major urban areas. All the offices of Adriatic Slovenica are safe points for
children and the projects has spread to 204 safe points around Slovenia. In cooperation with the Association of Friends of
52
The KD Group Annual Report 2009
Youth we donated funds to organise holidays for children from socially deprived families as part of the project »Wink at the
Sun«.
KD Fundacija
The Group established the AJDA Foundation back in 1995. Its primary purpose is to fund the education of children and
investors in KD funds and those with above-average results and , but an under-privileged social background. Over time, the
Group KD Group determined that the Foundation's original purpose had become too narrow. With the renaming of the AJDA
Foundation to the KD Fundacija Foundation at the end of 2008, we expanded its objectives and purpose. In accordance with
its purpose, in 2009 the Foundation encouraged and supported education and development of children and donated assets
for humanitarian aid. As part of the exclusive musical event Volkswagner, organised on the occasion of the 15th anniversary
of its establishment, the KD Group donated some of the proceeds from each ticket sold to the KD Fundacija. With the funds
collected, KD Fundacija in cooperation with the Association of Friends of Youth supported the Young and Europe project and
made it possible for forty senior school pupils to take part in an educational trip around Europe. The Fundacija supported
participation at International Children's Games in Athens.
53
The KD Group Annual Report 2009
3. OPERATIONS OF KD GROUP COMPANIES
BANKING AND INVESTMENT FUND MANAGEMENT
Banking
2009 marked the entry of the Group KD Group in the banking sector. On 2 March 2009, following a resolution of the Bank of
Slovenia to grant licence to KD BPD for the performance of banking and financial services and resolution of the Securities
Market Agency to grant permission to KD BPD for statutory conversion from a limited liability company into a public limited
company, the company became a public limited company and assumed a new name of KD Banka. Initially, KD Banka
concentrated on private, personal and investment banking services, including stockbrokerage, individual asset management
and corporate finance services. However, in order to adjust to the changed economic conditions, KD Banka decided for early
implementation of the basic corporate banking services, while at the same time it was developing services for the mass
market, which began to be marketed through the sales network of KD Finančna točka branches in February 2010.
In addition to KD Banka in Slovenia, in 2009 the following companies within the banking segment operated on foreign
markets: KD Securities in Bulgaria, SSIF KD Capital Management S. A. in Romania, and KD Upravljanje imovinom d. o. o.,
Zagreb, in Croatia. With the aim of adapting to the market circumstances and business optimisation of the stockbrokerage
segment, in 2009 we began the process of the closure of KD Securities in Bulgaria.
KD Bank's main projects in 2009 included successful start-up of the banking operations, development of the bank's
infrastructure and services, and implementation of the private and personal banking concepts based on a wide palette of
banking and non-banking services and top quality relationship with clients, and recruitment of new clients. Initially KD Banka
entered the market of wealthy clients under the KD Privilege trademark intended primarily for increasing wealth and as such
is designed to meet requirements of the most demanding individuals. As part of positioning and consolidating the reputation
of KD Banka in the field of private banking and in order to gain new clients and strengthen relationships with other
professional and influential public, in September 2009 KD Banka invited the then Nobel prize winner for economy, professor
Paul Krugman, one of the most admired and influential world economists to be a speaker at the professional event KD
Privelege. Professor Paul Krugman, professor of economy at the University of Princeton, talked about the current financial
crisis, its origin, development and future measures of the financial sector and global economy. In the organisation of the
event, KD Banka set up excellent cooperation with the Faculty of Economy in Ljubljana as the partner of the event and long-
term relationships with other influential associations.
In 2009, KD Bank focused on private and investment banking. We have developed a range of products for corporate entities
inclusive of transaction accounts, deposits and a variety of credit facilities as well as online bank »Halcom«. For retail clients
KD Banka developed variety o personal accounts, payment cards, savings accounts, deposit accounts with various
maturities, Lombard loans and online banking. At the beginning of 2010, KD Banka entered the mass market with
standardised products where the key sales channels include online banking and the network of KD Finančna točka branches
all over Slovenia.
At the end of 2009, KD Banka had over 3,200 clients, while total value of assets held by private clients and assets under
individual management stood at EUR 51 million, and EUR 336 million of brokerage assets. The operations of the banking
division were marked by financial crisis to which we have responded efficiently. Much attention was devoted to
communications with our clients as we believe that direct communication is of vital importance as it enables development of
an individual relationship between a bank clerk and the client. Therefore we adjusted our communications with clients to the
time that was most suitable for them. In terms of corporate communications our efforts were devoted to the positioning and
consolidating the recognition of the bank and its trademark KD Privilege. Improved client communications, further
development of KD Banka products and services, and successful marketing of our products that allow for a number of
options to increase wealth, are the vital elements for realising the set goals.
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The KD Group Annual Report 2009
Challenges in 2010:
In the first quarter of 2010 we intend to successfully penetrate the mass market and offer wider population comprehensive
range of banking products and services through a network of KD Finančna točka branches.
In 2010 we will add new services to our range of banking products and services such as investment consultancy services, a
number of different credit facilities, savings and other financial instruments. The range of products and services will reflect
the needs and wishes of our clients and will be available through a number of marketing channels.
KD Banka will continue to develop additional services of commercial and investment banking and will strive to meet the
needs and wishes of both, individual clients and small and medium-size companies. Thus the bank will pursue its basic
strategy - for KD Banka to become recognised medium-sized bank focused on private banking and the best provider of a
comprehensive palette of investment banking services and asset management in Slovenia.
In 2010 the development of sales channels will pursue three key goals: to enable and support introduction of new products
and services through all key sales channels; ensure comprehensive overview of a client's transactions with the KD Group in
one place for unification of user experience and improvement of the available functions, as well as development of new ones
that are adjusted to the needs of clients.
Companies within the division:
Slovenia
KD Banka d.d.
Neubergerjeva 30, Ljubljana, Slovenia
Telephone: + 386 59 22 00 00
Fax: + 386 59 22 00 45
E-mail:info@kdb.si
Website: www.kdb.si
www.kd-privilege.si (KD Privilege private banking website)
Croatia
KD Upravljanje imovinom d. o. o., Zagreb
Radnička cesta 39, Zagreb, Croatia
Telephone: + 385 1 627 44 44
Fax: + 385 1 627 44 08
E-mail: kdam@kd-group.hr
Website: www.kd-group.hr
Romania
SSIF KD Capital Management S. A., Bucharest
Gheorghe Manu 5, Bucharest, Romania
Telephone: + 40 21 650 04 47
Fax: + 40 21 650 04 48
Website: www.kd-capital.ro, www.kd-group.ro
E-mail: office@kd-capital.ro
Bulgaria
KD Securities EAD, Sofia
Frityof Nansen Blvd. 9, Sofia, Bulgaria
Telephone: + 359 2 810 26 95
Fax: +359 2 981 01 08
E-mail: kds.office@kd-group.bg
Website: www.kd-group.bg
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The KD Group Annual Report 2009
Investment fund management
Five asset management companies operating within the Group KD Group manage a total of 27 mutual funds and two
investment companies in the South Eastern European region. The leading investment management company, KD Skladi,
Ljubljana, is currently the largest asset management company in Slovenia. It manages KD Krovni sklad with 17 sub funds
and KD ID, delniška investicijska družba, d. d.. In addition, it manages assets of well-informed investors. Currently there are
four asset management companies operating outside Slovenia who jointly manage eleven investment funds: four mutual
funds in Croatia, two in Romania, two mutual funds and one investment company in Bulgaria and two mutual funds in
Macedonia.
The core activity in this division is management of investment funds and assets of well informed investors. Our core strategy
is to offer investors, primarily those from South Eastern Europe, the widest possible selection of investment opportunities,
while also providing a comprehensive range of investment services in the region to investors from around the world. The goal
of KD Skladi is to become within a period of five years a recognised central asset management company in Central Europe
who, with top class professionals and excellent business processes manage assets of both Slovene investors and that of
investors from neighbouring countries as well as money of global institutional investors. Our aim is to within five years gain a
25 percent share of the Slovene market. In all other countries our goal is to establish profitable asset management
companies with increasing market shares.
By the mid 2009 conditions on the capital markets were slowly stabilizing and from March onwards we have seen increase in
share prices indices which improved the general level of optimism of investors. Funds within the KD Group performed well in
terms of their return (majority recorded positive returns) and in terms of investors. In terms of return, they successfully
competed with local and foreign competition with some of them being the leaders in individual categories. The increased
trend in the number of accession forms continued and funds recorded positive inflows. At the end of 2009 total value of
managed assets of all asset management companies in the Group KD Group reached EUR 449.1 million, compared to EUR
360.6 million recorded at the end of 2008.
Changed business conditions on the market as a result of financial and economic crisis required from companies in the
segment of Investment fund management to continue with the process of business rationalisation and optimisation, while at
the same time focusing on the core activity of fund management and looking for synergies within the Group to improve
quality of services and achieve professionalism and excellence in all business areas including corporate governance and
responsibility of supervisory bodies. Asset management companies in the Group took advantage of the increased prices in
capital markets to intensify sales efforts and market new savings plans and regain investors' trust.
Main activities and achievements in 2009:
- KD Skladi retained the leading position among Slovene asset management companies in terms of the volume of assets
under management and selection of funds and at the end of 2009 it managed over EUR 421 million of assets in 17 sub
funds of the KD Krovni sklad and KD ID, delniška investicijska družba, d. d.
- KD Skladi was among the first in Slovenia to transform all of its 17 mutual funds into sub funds of KD Krovni sklad,
making transfer between individual sub funds more beneficial for investors (in terms of tax).
- The Group KD Group funds were among the most successful Slovene and foreign funds in their categories.
- KD BRIK equity fund was the most profitable fund in Macedonia.
- For the second consecutive year KD Skladi were awarded Trusted Brand prize by the Reader's Digest readers as the
trademark that is most trusted by Slovene consumers.
- In cooperation with Concorde Premoženjsko svetovanje, KD Skladi began marketing new savings plan VIP plus 100
and VIP 100 Premium.
- At the fifth, now traditional awards ceremony for the best mutual funds managers, KD MM monetary fund received "Zlati
V" (Golden V) in the category of one-year monetary funds.
- KD Skladi introduced new modern service, web-based office KD Skladi.net, where investors can freely and safely check
their balances in the selected funds.
- KD Skladi introduced the option of monthly payments for its investors (natural persons) through direct debit facilities.
- Asset management companies devoted much attention to communications with investors and organisation of seminars.
KD Skladi, Ljubljana, and KD Investments, Zagreb, redesigned their websites; KD Skladi were first to introduce in
Slovenia video commentary; jointly with KD Življenje, KD Skladi began publishing a magazine for investors ”Kdaj in
kako” (When and How).
- For more efficient operations, Slovak asset management companies KD Investments, Bratislava and laD Investments
merged and transferred mutual funds to KD Prosperita and KD Russia, who were until then managed by KD
Investments, Bratislava, to the successor company laD Investments.
- To optimise operations of KD Group as the only partner in KD Investments, Beograd, and to adapt the KD Group
operations to market conditions, Serbian fund KD Ekskluziv was transferred to the asset management company Citadel
Asset Management, Društvo za upravljanje investicionim fondovima.
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The KD Group Annual Report 2009
Challenges in 2010:
• We will continue to confirm excellence in management to justify investors' trust.
• We shall intensify our efforts for improved recognition of KD funds in order to retain the leading position in Slovenia
and consolidate market shares in South Eastern Europe.
• We will continue to improve our portfolio of products in line with the current industry trends and market needs, while
preserving the main drivers of innovation and focussing on the investor. Most of all, we will market existing
products in even more attractive packages.
• In realisation of increased recognition and development of new products and services with the existing companies
in the Group, we will endeavour to utilise the newly established KD Banka as additional sales channel thus utilising
product and sales synergies.
• We shall develop friendlier and simpler transactions for investors by using Internet to access funds and online
services.
• By registration of Slovene funds for local sale and in accordance with the legislation, we will expand the range of
funds available in Romania and Bulgaria where we are already present.
• In accordance with new regulatory guidelines and possibilities of adapting the operations of asset management
companies, investment funds and relationships with clients, we shall continue to strive to achieve the highest
possible satisfaction of existing and future investors.
• By 2011, KD Skladi will transform KD ID, delniška investicijska družba, d. d., into a mutual fund.
Data concerning investment funds of the Group KD Group as at 31 December 2009
Euro
Net value of exchange
Geographical / Unit price the fund (in Number of units Number of rate
Fund Type of fund segmental orientation (in EUR) EUR) in circulation investors 31. 12. 2008
Slovenia
Flexible asset
KD Galileo structure Europe 8.81 150,009,865 17,031,696.8525 28,931
KD Rastko Equity Europe 20.25 65,892,677 3,253,889.7709 16,243
KD Bond Bond Europe 13.15 9,732,800 740,245.6894 3,377
Fund of equity
KD Prvi izbor funds Global 4.89 27,412,226 5,604,736.3695 4,105
Money market
KD MM fund Global 49.49 12,566,957 253,944.8251 1,315
KD Balkan Equity South Eastern Europe 2.60 24,090,779 9,266,134.5347 8,236
KD Novi trgi Equity Emerging markets 4.90 23,340,083 4,767,896.3165 4,518
KD Severna Amerika Equity North America 3.11 795,390 255,904.4944 216
KD Surovine in
energija Equity Raw materials, energy 4.15 4,910,865 1,183,497.5666 1,447
KD Tehnologija Equity Technology 4.50 1,603,774 356,566.9320 455
Renewable sources of
KD Nova energija Equity energy 0.81 11,719,368 14,450,885.7290 3,397
Healthcare consumer
KD Vitalnost Equity goods, etc. 0.96 869,143 901,815.9833 392
KD Indija-Kitajska Equity India and China 1.30 13,332,283 10,225,863.0084 1,264
KD EM Infrastruktura Infrastructure-related
in gradbeništvo Equity activities 1.13 425,592 375,996.9139 190
KD Finance Equity Finance 0.79 656,408 826,358.7687 185
KD Latinska Amerika Equity Latin America 1.38 6,719,799 4,871,549.5889 546
KD Vzhodna Evropa Equity Eastern Europe 1.14 1,644,889 1,443,321.2576 421
Share Euro
market Net value of exchange
Geographical / price (in the fund (in Number of rate
Share Name segmental orientation EUR) EUR) Number of shares investors 31. 12. 2008
KD ID, delniška
investicijska
KD ID (KDIR) družba, d. d. Europe 5.30 66,050,676.74 9,181,542 33,799
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The KD Group Annual Report 2009
Croatia
Share Euro
market Net value of exchange
Geographical / price (in the fund (in Number of rate
Share Name segmental orientation EUR) EUR) Number of shares investors 31. 12. 2008
KD Victoria 1 EUR =
Equity Europe 2.0848 9,182,451,46 4,404,400.0591 3,399 7.31 HRK
KD Prvi izbor 1 EUR =
Fund of funds Europe 1.5764 675,797.33 428,683.6965 26 7.31 HRK
KD Balanced Flexible asset 1 EUR =
structure Europe 1.1296 1,763,679.45 1,561,323.2471 305 7.31 HRK
KD Nova Europa 1 EUR =
Equity Europe 0.8634 2,572,631.79 2,979,560.1522 1,010 7.31 HRK
Romania
KD Maximus 1 EUR =
Equity Romania 2.9321 9,117,818 3,109,692.31 849 4.23 RON
KD Optimus 1 EUR =
Balanced Romania 2.1390 220,237 102,961.15 17 4.23 RON
Bulgaria
KD Equity Bulgaria Central and Eastern 1 EUR =
Equity Europe 0.38 993,660.34 2,645,484.3191 359 1.96 BGN
KD Bond Bulgaria Central and Eastern 1 EUR =
Debt Europe 64.40 393,645.72 6,112.5259 17 1.96 BGN
Euro
exchange
Geographical / segmental Share market Net value of the Number of rate
Share Name orientation price (in EUR) fund (in EUR) Number of shares investors 31. 12. 2008
KD Pelikan Central and Eastern 1 EUR =
KD Pelikan Europe 7.62 2,204,266.15 289,349.0000 175 1.96 BGN
Euro
exchange
Geographical / segmental Unit price (in Net value of the Number of units in Number of rate
Fund Type of fund orientation EUR) fund (in EUR) circulation investors 31. 12. 2008
Macedonia
KD BRIK 1 EUR =
Equity Global 2.2931 201,174.65 87,729.1838 400 61.17 MKD
1 EUR =
KD Južen Balkan Equity Balkans 2.1893 79,328.18 36,233.5095 181 61.17 MKD
Companies in the division:
Slovenia
KD Skladi, družba za upravljanje, d. o. o.
Celovška cesta 206, Ljubljana, Slovenia
Telephone: + 386 1 582 67 80
Fax: + 386 1 518 40 88
E-mail: kd-skladi@kd-group.si
Website: www.kd-skladi.si
Management Board (31 December 2009):
Peter Groznik, PhD, President of the Management Board
Roman Androjna, Member of the Management Board
Louise Chatwood, MBA, Member of the Management Board
Croatia
KD Investments, društvo za upravljanje investicijskim fondovima, d. o. o., Zagreb
Radnička cesta 39, Zagreb, Croatia
(25 January 2010)
Miramarska 105, Zagreb, Croatia
Telephone: + 385 1 627 45 55
Fax: + 385 1 627 45 10
E-mail: info@kd-group.hr
Website: www.kd-group.hr
Management Board (31 December 2009):
Matej Tomažin, President of the Management Board
Branko Gladović, Member of the Management Board
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The KD Group Annual Report 2009
Romania
SAI KD Investments S. A., Bucharest
Calea Giulesti 8D, 3rd floor, Bucharest, Romania
Telephone: + 402 1 650 04 44
Fax: + 402 1 650 04 42
E-mail: info@kd-group.ro
Website: www.kd-group.ro
Management Board (31 December 2009):
Gerrit Alberts, President of the Management Board
Peter Groznik, PhD, Member of the Management Board
Katja Kraškovic, MSc., Member of the Management Board
Bulgaria
KD Investments EAD, Sofia
58 Bolgarija Blvd., fl. 7, offise 24, Sofia, Bulgaria
Telephone: + 359 2 810 26 51
Fax: + 359 2 981 21 65
E-mail: info@kd-group.bg
Website: www.kd-group.bg
Management Board (31 December 2009):
Georgi Biserinski, President of the Management Board
Nelly Petrova, Member of the Management Board
Luka Flere, MSc., Member of the Management Board
Louise Chatwood, MBA, Member of the Management Board
Katja Kraškovic, MSc., Member of the Management Board
Macedonia
KD Fondovi A. D. Skopje
Ul. Vodnjanska nr. 7/1, Skopje, Macedonia
Telephone: + 389 2 3105 930
Fax: + 389 2 3105 939
E-mail: kdfondovi@kd-group.com
Website: www.kd-fondovi.mk
Management Board (31 December 2009):
Peter Groznik, PhD, President of the Management Board
Laze Kamčev, Member of the Management Board
Marijan Nikolovski, Member of the Management Board
Grega Meden, Member of the Management Board
Žiga Hieng, MSc., Member of the Management Board
59
The KD Group Annual Report 2009
INSURANCE
The insurance-related activities of the Group KD Group include life and property insurance (including health insurance. Two
life insurance companies operate in Slovenia: KD Življenje, a life insurer, and Adriatic Slovenica, a universal insurer that
markets life insurance and property insurance, including health insurance. In accordance with the Group's strategy of
expansion to foreign markets, in 2009 insurance companies within the Group operated in the following foreign markets:
Ukraine, Croatia, Romania, Bulgaria and Slovakia through subsidiaries. Property insurance is marketed by property
insurance company AS neživotno osiguranje a.d.o. Beograd in Serbia.
Features of the Slovenian insurance market in 2009
In the history of business, 2009 was marked by the biggest global economic crisis which affected also the field of insurance.
This is evident in a moderate growth of property insurance premium and negative growth of gross life insurance premium.
Experts assume that the latter is a consequence of a lower interest among the population to invest free assets in investments
funds which have accelerated the growth of life insurances in the past years. At the same time the market is becoming more
and more competitive since foreign insurance companies are entering the market of the already fierce domestic competition.
By the end of December 2009, there were 23 insurance entities engaged in the insurance activities and based in the
Republic of Slovenia. Among them, 11 insurance companies sell life insurances, 2 reinsurance companies and 3 affiliates of
foreign insurance companies. The competitiveness in the insurance sector has become stronger in all segments, especially
in the field of life and health insurance.
In terms of the insurance market development, Slovenia ranks among semi-developed countries. Regarding the share of the
total life insurance premium in the gross domestic product in 2008, Slovenia reached the seventeenth place among the EU
countries, according to the latest available data. It was thus placed before the Czech Republic, Luxembourg, Slovakia,
Bulgaria, Estonia, Latvia, Lithuania, Greece and Romania. Regarding the height of the premium income per capita it holds
the eighteenth place.
Unlike the comparable EU countries, Slovenia still reaches a significantly lower share of life insurances in the total insurance
premium. The share has been constantly growing. From 2000 to 2009 it increased by 11 percentage points, from 19.4
percent to 30.4 percent (including pension insurance). The reasons for such a low share of life insurance are considerable
share of social insurances, insufficient knowledge about life insurance products and lack of awareness of the importance of
such insurances.
In comparison to 2008, the extent of transactions in property insurance companies grew on the average by 5 percent. In
2009, property insurance companies (not considering the Pension Fund Management and the Fund for Craftsmen and
Entrepreneurs) gained EUR 1,445.2 million with property insurance premiums. While a 3.8 percent decrease has been noted
on the life insurance market during the period under review, the ordinary insurance companies (excluding the Pension Fund
Management and the Fund for Craftsmen and Entrepreneurs) gained EUR 486.8 million of life insurance premiums.
Insurance at the Group KD Group
The Group KD Group's key strategic orientations in the insurance division are based primarily on growth in domestic and
foreign operations and the provision of a comprehensive range of financial services through various sales networks.
Thus the Group consolidated and strengthened existing sales channels in Slovenia.
In 2009, Group KD Group insurance companies comprehensively expanded and enriched their portfolios and developed
new, specialised products for individual target groups. In Slovenia, KD Življenje continued in its role as the leader in new
product development and developed two new products in 2009: Fondpolica Maks Garant Plus, Fondpolica Maks Garant with
additional safety features that allow for fast and high return in spite of fluctuating financial markets and Whole life insurance –
life insurance for the event of death with a constant and downward insurance premium and defined insurance term. The
insurance company improved life insurance policies Fondpolica and KD Družina and KD Pokojnine by inclusion of the
Zajamčeni paket (Guaranteed package) a new investment package which makes these insurance products even more
adaptable. With the introduction of the Active investment package the insurance company has upgraded the best selling of
its all investment packages in the Fondpolica investment-linked life insurance packages namely, Dynamic investment
package.
In the field of property insurance Adriatic Slovenica once again developed a range of new products in 2009. It offered Dom
AS, a new, comprehensive immovable and movable property insurance enabling the insurance holders to insure their entire
property (their house, apartment and its equipment, agricultural machines, pets and many more subject matters) with one
policy. In the field of car insurance they expanded their quality offer and launched a new package of car insurance offering
special advantages to the insurance holders upon taking out the car liability insurance (AO) and car liability insurance plus
(AO plus) package. They were the first in Slovenia to introduce something completely new for young drivers - the insurance
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The KD Group Annual Report 2009
policy called “My first car policy” intended for the young with less than three years of driving experience. This policy
substitutes a 25 percent additional payment in the car liability insurance for a car driven by a less experienced driver. In
addition, the insurance covers a driver and not an individual vehicle. Those who chose the car liability insurance package in
June were offered also the possibility of redemption of the first loss which prevents them from losing points on a rating scale
after the first loss event. The company actively began to market unique credit insurances in case of accidental death,
permanent disability and unemployment due to non-fault-based grounds. It introduced an exclusive offer of liability insurance
for the members of the Slovenian Directors’ Association performing management or supervisory functions, with which one
can insure personal liability for damages for the performance of the function of a member of management and supervisory
boards. In addition, Adriatic Slovenica broadened its offer of accident insurance for school children. In September they
offered a possibility of long-term accident insurance policies for preschool children and primary and secondary school
students. This offered fixed premiums and insurance sums during the entire educational process, health insurance with
assistance CORIS during every summer holiday and numerous other advantages and benefits. Adriatic Slovenica also
remained the leading Slovenian insurance company offering above standard health insurances in 2009. In June it launched a
renewed above standard health insurance for the above standard services in specialist outpatient clinics, offering expanded
existing coverage and also medical procedures which are part of a one day treatment, endoscopic and cell and tissue tests.
We have expanded our offer abroad as well. At the beginning of 2009 we introduced a new type of life insurance called
Debut in Ukraine and in the middle of the year we presented a new type of accidental death insurance in Bulgaria. On other
markets we continued to sell life insurances which we had offered on the market already in the previous years. The Serbian
AS neživotno osiguranje a.d.o. Beograd markets besides property insurance also accident and voluntary health insurances
(in packages together with car insurances) and assistance insurances through Coris. AS neživotno osiguranje a.d.o. Beograd
started operating in September 2008. In 2009 it was already well established on the Serbian insurance market.. By the end
of 2009 the company held a 3.5 percent market share in the field of third party car insurance.
In 2009, the Group KD Group achieved a 17.0 percent share of the Slovenian insurance market, with total premiums
collected of EUR 329.3 million (AS 260.6 + KDŽ 68.7).
On foreign markets, the Group KD Group collected total life insurance premiums of EUR 6.8 million and total property
insurance premiums of EUR 5.1 million EUR (restated at the effective mean rate of the National Bank of Serbia as at 31
December 2009).
Life insurance company KD Življenje is the second largest life insurance providers in Slovenia and in spite of unstable
economic conditions, at the end of 2009 it increased its market share to 14.1 percent. Slovenian life insurance market was in
2009 marked primarily by the financial crisis reflected in an average 3.8 percent decline which was preceded by several
years of continuous growth in the number of life insurances.
Life insurance companies experienced a large number of cancellations or withdrawals from insurances in comparison to the
previous years. Therefore in the future life insurance offers shall include current life insurances covering the risk of death, or
standard life insurances under which the insured person receives the agreed sum after a set period of time. The investment
insurances will include interesting products with a guarantee, and in not so distant future, also annuity insurances. Regarding
the situation on the financial markets we expect a moderate increase in the number of life insurances in the medium term.
12.56 percent market share of Adriatic Slovenica in 2009 makes it the third largest insurance company in Slovenia. In terms
of property insurance, the insurance company held a 17.01 percent share, in terms of health insurance its share in 2009 of
23.9 percent places the company in the second place on the health insurance market, while it holds the leading position on
the market of above-standard health insurance. Due to its consolidated market network and modern insurance products
supplemented by first-class assistance services, the insurance company has set even more ambitious goals for the next
financial year. Regarding the situation on the Slovenian market, the offer and the possibility to take out the widest range of
insurances (property, health, life and pension insurances) bring an additional advantage on the market. In times of limited
access to other financial sources, comprehensive and quality insurance and financial services give our insurance holders a
bigger financial and personal security.
In Slovenia, the largest share of sales of KD Življenje life insurance was achieved through KD Finančna točka, which last
year had 14 regional branches, while the mobile network employs more than 250 active contractual partners and employed
marketing professionals. In terms of their number, contractual agencies of the insurance company took the second place
after the marketers, followed by our own network of representatives KD Življenje.
Adriatic Slovenica is increasing property insurance sales through an extensive marketing network and, at the end of the last
year, provided insurance services at nine business units in all of Slovenia’s main regional centres, three branches, 46
representative offices and in the contracted marketing network of insurance agents with 96 underwriting locations and 114
points of sale via complementary sales channels, for a total of 268 sales outlets. The marketing network was equipped with
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The KD Group Annual Report 2009
additional points of sales and improved after-sales services developed to improve market coverage. The insurance company
also developed complementary market channels.
In foreign countries life insurances were marketed through the network of our own representatives, KD Finančna točka and
EU Life sales channels, contractual agencies and representative insurance agencies. The marketing of property insurance
was carried out through the subsidiary company AS neživotno osiguranje a.d.o. Beograd and through its operating units and
offices and points of contract conclusions. In 2009 the marketing network expanded. In addition to the business units in
Belgrade, Novi Sad and Čačak which was transferred to a new location because of the increased scope of business
transactions, a new business unit was opened in Niš. Two new offices started to operate in June in Kruševac and Šabac.
Challenges in 2010
- To generate over EUR 84 million of life insurance premiums, over EUR 256 million of property insurance premiums
(including health insurance premiums) which translates to 3.6 percent increase in property insurance and 5 percent
increase in health insurance.
- To increase returns on investments and boost short and long-term liquidity.
- To follow the strategy of stabilisation and costs efficiency with the aim of reaching the level of profitability required by the
owner.
- To grow and consolidate the market positions of Group KD Group insurance companies and maintain the leading role in
the development of new insurance products.
- To upgrade existing insurance products, particularly through the development of cross-sales of insurance, thus offering
policyholders additional services; to develop insurance products adapted to the needs of the market and individual
customers; to develop innovative life insurance products; to update existing property insurance products, in particular by
developing new standardised and supplementary insurance packages; to develop additional and enhanced assistance
services and, to develop new after-sales activities.
- To develop and upgrade the existing sales network.
- To exploit the synergy effects of the various sales channels of both insurance companies; To maintain KD Finančna
točka as the primary sales channel for KD Življenje; To maintain and develop existing sales channels at Adriatic
Slovenica, to strengthen the company's own network of agents and to continue developing sales of insurance via
complementary sales channels, including an Internet-based sales channel
- To ensure the growth of operations at KD Življenje and Adriatic Slovenica outpaces growth on the domestic and foreign
markets.
Insurance companies
Slovenia
Adriatic Slovenica, Zavarovalna družba, d. d., Koper
Ljubljanska cesta 3a, Koper, Slovenia
Telephone: + 386 5 664 31 00
Fax: + 386 5 664 31 09
E-mail: info@adriatic-slovenica.si
Website: www.adriatic-slovenica.si
Management Board (31 December 2009): Gabrijel Škof, President of the Management Board
Matej Cergolj, Member of the Management Board
Marko Rems, Member of the Management Board
Management Board (1 October 2009): Gabrijel Škof, President of the Management Board
Milena Georgievski, Deputy President of the Management Board**
Matej Cergolj, Member of the Management Board
Marko Rems, Member of the Management Board
* On 28 February 2009, Marko Rems’ tenure as member of the Management Board came to an end
** As from 1 October 2009, the mandate of Milena Georgievska, Deputy President of the Management Board expired and
she retired.
KD Življenje, zavarovalnica, d. d., Ljubljana
Celovška cesta 206, Ljubljana, Slovenija
Telephone: +386 1 58 26 550
Fax: +386 1 518 18 95
E-mail: info@kd-zivljenje.si
Website: www.kd-zivljenje.si
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The KD Group Annual Report 2009
Management Board (31 December 2009): Matija Šenk, President of the Management Board
Mateja Keržič, Member of the Management Board
Ingrid Kuk, MSc., Member of the Management Board
Croatia
KD životno osiguranje d. d., Zagreb
Radnička cesta 39, Zagreb, Croatia
Telephone: + 385 1 6285 101
Fax: + 385 1 6197 456
E-mail: info@kd-life.hr
Website: www.kd-life.hr
Management Board (31 December 2009): Neven Tišma, President of the Management Board
Andreja Radič, Member of the Management Board
Slovakia
Branch
KD Life, Insurance Company, plc, Ljubljana
Astrova 2/A, Bratislava, Slovakia
Telephone: +421907948244
E-mail: info@kd-life.sk
Website: www.kd-life.sk
Management (31 December 2009): Gregor Šušmelj, Branch Director
Czech Republic
Cross-border operations
E-mail: pojistovna@kd-life.cz
Website: www.kd-life.cz
Romania
KD Life Asigurari S.A.
8D Calea Giulesti 3rd floor, Bucharest, Romania
Telephone: +40 21 650 55 06
Fax: +40 21 650 55 04
E-mail: office@kd-life.ro
Website: www.kd-group.ro
Management Board (31 December 2009): Matija Šenk, President of the Management Board until 12 December 2009
Ian Harrocks, CEO
Zefir Castris, Member of the Management Board
Bulgaria
KD ZHIVOT AD
Al. Dondukov blvd. 79-81, 4th floor, Sofia, Bolgarija
Telephone: +357 2 933 79 11
Fax: +357 2 933 79 19
E-mail: office@kd-life.bg
Website: www.kd-life.bg
Management Board (31 December 2009): Matija Senk, President of the Management Board
Radovan Pusnar, Member of the Management Board
Ivan Janakiev, Member of the Management Board
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The KD Group Annual Report 2009
Ukraine
KD Life CJSC
Lineynaya str., 17 Building A, Kiev, Ukraine
Telephone: +380 44 499 5999
Fax: +380 44 499 5990
E-mail: office@kd-life.com.ua
Website: www.kd-life.com.ua
Management Board (31 December 2009): Vitaly Kovalenko, President of the Management Board
Alyona Stepanova, Member of the Management Board
Neda Thaler, Member of the Management Board
Serbia
AS neživotno osiguranje a.d.o. Beograd
Bulevar Mihajla Pupina 165E, 11070 Novi Beograd, Serbia
Telephone: +381 11 260 8676
Fax: +381 11 260 8684
E-mail: info@as-osiguranje.rs
Board of Directors (31 December 2009):
Prof. Jova Miloradić, PhD, General Manager and President of the Board of Directors Metod
Grah, Procurator
Gabrijel Škof, President of the Assembly
Board of Directors (until 7 August 2009):
Metod Grah, General Manager
Prof. Jova Miloradić, PhD, Deputy General Manager
Gabrijel Škof, President of the Assembly
Metod Grah, President of the Board of Directors
Selling activities of the Group KD Group
During the global crises it is crucial to take care of the buyer, therefore the sale is our most important activity. By reorganising
the Group KD Group we raised the sale to a strategic level where KD Finančna točka plays the key role. Namely, it is the
Group’s main selling channel and at the same time the only channel which joins and combines all products of the companies
within the Group KD Group - investment in mutual funds, life, property and health insurances, securities brokerages and also
banking services. Our vision is to provide the widest range of products and services at one place and remain the leading
company selling financial products of the Group KD Group in Slovenia with the best standard of services. Apart from a wide
range of products and expert advisory service, the main advantage of KD Finančna točka is its accessibility, which can only
be reached with our strong network of regional branch offices all over Slovenia and mobile networks of marketing advisers.
Additional support is provided through our web portal www.financna-tocka.si and a call centre. The mission of KD Finančna
točka is thus to increase the satisfaction of our clients with our offer of innovative, excellent and competitive financial
products at one place with the help of a chosen personal adviser. By doing this we meet and importantly supplement the
goals of the Group.
The KD plus club functions within the framework of the company KD Mark. Its main goal is to strengthen the trust of the
already existing clients of the Group. The KD plus club offers its clients numerous advantages related to the Group’s financial
services and benefits from other various fields offered by external partners. In addition, the Club connects the services of the
companies within the Group, and strengthens and establishes synergy effects among the companies.
In 2009, KD Finančna točka had 14 regional branch offices. The mobile network was composed of 250 active contractual
partners and employed marketing professionals. A call centre with 24 associates, 4 of which are permanently employed, and
of course our website www.financna-tocka.si provide additional support to personal sales and an additional communication
channel for clients. In 2010, the website will get a new image and structure as well as an integrated and enhanced the offer
of the Group’s products. The website www.financna-tocka.si will thus enable quick, transparent and simple obtaining of
information in carrying out the Group’s financial services anyplace and anytime.
64
The KD Group Annual Report 2009
At the end of 2009, the offer of KD Finančna točka comprised life insurances of the insurance company KD Življenje,
information, advisory services and an access to 17 sub-funds of the KD Krovni sklad and the savings plan VIP 100 Premium
of the asset management company KD Skladi, health and property insurances of Adriatic Slovenica, securities brokerage,
individual assets management services of KD Banka and the possibility of voluntary health insurance abroad with the
Assistance CORIS. The offer of KD Finančna točka will be supplemented with banking services of KD Banka from the
beginning of 2010 on.
Since the very beginning, the plans of KD Finančna točka have been focused on the penetration to different Central and
Eastern European markets, where other companies within the Group were also present. But with regard to the existing global
economic crisis, the Company has decided to withdraw from Slovakia, Romania and Croatia. The subsidiary company in
Bulgaria has remained active.
At the end of 2009, 851 new investors and over EUR 18 million of indirect payments into KD Skladi investment funds, and
over EUR 32 million of payments (including transfers) , were recorded at the branch offices of KD Finančna točka. Over
9,000 new insurances were taken out at KD Finančna točka, and 2,000 from the “existing insurance holders” offer. The total
new written annual premium amounted to over EUR 5,300,000, and a single premium to over EUR 4,700,000. In 2009, the
website www.financna-tocka.si was visited by more than 250,000 users, and at the end of 2009 the KD plus club had more
than 72,000 members.
Challenges in 2010:
• to sell more than 10,000 life insurance policies in Slovenia and to contribute more than EUR 30 million of direct
inflows to mutual funds of KD Skladi (total transfers and KD MM), to gain over 4,000 clients for KD Banka
• to set up a model KD Finančna točka branch that will offer a comprehensive range of services of all financial pillars
the so called »all-finance« service, and combine knowledge, products and services at one place
• to continue active marketing of banking products of KD Banka for the whole market
• to expand the (mobile) sales network
• to achieve a high standard of sales accompanied by a high level of professionalism of financial advisors to be
achieved through constant training.
Companies in the sales of financial services division
KD Finančna točka, premoženjsko svetovanje, d.o.o., Ljubljana
Address: Celovška cesta 206, Ljubljana, Slovenia
Telephone: + 386 1 582 67 51
Fee number: 080 12 08
Fax: + 386 1 582 66 52
E-mail: info@kd-financnatocka.si
Website: www.financna-tocka.si
Management Board (31 December 2009): Matej Marošek, President of the Management Board
Katja Kraškovic, MSc., Member of the Management Board
KD Mark, storitveno podjetje, d.o.o., Ljubljana
Address: Celovška cesta 206, Ljubljana, Slovenia
Telephone: + 386 1 582 67 12 and +386 1 582 68 25
Fax: + 386 1 582 66 52
E-mail: info@kdplus.si
Website: www.kdplus.si
Management Board (31 December 2009): Špela Klun, Director
65
The KD Group Annual Report 2009
Capital investments
The Group KD Group’s capital investment division is managed by KD Kapital, Ljubljana. With the establishment of the
company, the Group separated the management of non-listed investments and significant listed investments from strategic
and listed portfolio investments. The capital investments division also includes real estate.
KD Kapital's activities include: management of non-listed investments and specific significant listed investments;
management of management companies and investment funds that succeeded privatisation funds in Bosnia and
Herzegovina and the Republic of Srpska.
Management of non-listed investments and specific significant listed investments
In 2009, KD Kapital disposed off and pledged a portion of existing investments and used the proceeds to extend a loan to the
parent company. The sole source of funding of KD Kapital is the equity capital. The company preserved flat organisation with
a small team of key staff, reasonable out sourcing and efficient application of management leverages through asset
management companies in the investment funds. KD Kapital is the direct holder of 32 investments. The ten largest
investments include investment in: Elektro Ljubljana d. d., Nama d. d., Žito d. d., Kmečki glas d. o.o., Savske elektrarne d. o.
o., Semenarna Ljubljana d. d., Žičnice Vogel d. d., Ljubljanske mlekarne d. d., Mlekarna Celeia d.o.o., Cimos d.d. and
Vrtnarstvo Celje d. o. o.
Significant capital investments held indirectly or directly by KD Group d. d. include Gea College d. d., Deželna banka
Slovenije d. d. and Seaway Group d. o. o.
Closed-end investment funds in South Eastern Europe
At the end of the year, KD Kapital owned two subsidiaries among management companies established in the privatisation
process in the Federation of Bosnia and Herzegovina and the Republika Srpska:
- a stake of 95.71 percent in ABDS d. d., Sarajevo, which manages the investment fund BIG;
- a stake of 51.0 percent in VIB a. d., Banja Luka, which manages the investment fund VIB.
KD Kapital holds a direct investment of 3.73 percent in MIG, investment fund in Monte negro.
Investments in KD Mont, asset management company, BIG and a portion of MIG (both funds) were disposed of.
The total value of the three investment funds in which KD Kapital holds either direct or indirect stake, stood at EUR 40
million as at 31 December 2009. Based on the management companies' reports, the net value of the funds was EUR 115
million as at 31 December 2009.
In 2009 liquidation process was instigated for KD Private Equity Fund B. V. (venture capital fund).
Investment fund MIG AD, Podgorica, Montenegro Data as at 31 December 2009
Net share price (in EUR) 0.26
Number of shares 109,685,100
Net value of the fund (in EUR million) 28.3
Market price per share (in EUR) 0.065
Closed-end investment fund VIB a. d., Banja Luka, Republic of Srpska Data as at 31 December 2009
Net share price (in EUR) 3.62
Number of shares 1,987,956
Net value of the fund (in EUR million) 7.2
Market price per share (in EUR) 1.28
Local currency: Convertible Mark (EUR–BAM exchange rate as at 31 December 2009) 1 EUR = 1.96 BAM
Closed-end investment fund BIG d. d., Sarajevo, Federation of Bosnia and Data as at 31 December 2009
Herzegovina
Net share price (in EUR) 6.76
Number of shares 10,654,406
Net value of the fund (in EUR million) 71.98
Market price per share (in EUR) 2.81
Local currency: Convertible Mark (EUR–BAM exchange rate as at 31 December 2009) 1 EUR = 1.96 BAM
66
The KD Group Annual Report 2009
Company profile:
KD Kapital, finančna družba, d. o. o., Ljubljana
Celovška cesta 206, Ljubljana, Slovenia
Telephone: + 386 1 582 67 96
Fax: + 386 1 582 68 23
E-mail: info@kd-group.com
Website: www.kd-group.com
Management Board: Janez Bojc, President
REAL ESTATE
The Group KD Group's real estate division is managed by KD Kvart, a young, dynamic and ambitious company. The
company's core activity is real estate investment engineering. The purpose of the real estate division is to search for
opportunities for the development of real estate projects, trade in real estate and the management of the Group KD Group's
real estate.
Business operation in 2009:
The Šumi project
The main project of the company is Šumi, a business and residential complex. During the last year, we focused chiefly on the
following activities:
Representing the interests of the KD Kvart (Group) in the settlement of dispute with a complainant regarding the issued
building permit – the legal validity has been obtained,
Preparing project documentation (in several alternative solutions) for a change of the building permit for the Šumi project,
Seeking financial resources to finance the construction of the Šumi project.
Engineering and project management
KD Kvart provided technical support and drew up the project documentation in the network expansion or the renovation of
the KD Finančna točka in Slovenia, where coordination of implementation was realised. We carried out project management
and supervision in the arrangement of the KD Banka premises, carried out professional advising on the “KD joint sale”
project, and supervised the AS projects– arrangement of new branch offices.
Real estate marketing
In 2009, the following activities in the field of real estate marketing were carried out by KD Kvart, d.o.o.:
Marketing of own real estate:
Slovenska cesta 12: in 2009 we hired out 3 apartments for a profit rent for an indefinite duration of the rent.
Soteska 6: in 2009 we hired out a business premise for a profit rent for an indefinite duration of the rent.
Kino Vič: in 2009 we launched marketing activities (lease, sale) of the Vič cinema facility.
Real estate brokerage in the KD Group:
KD Finančna točka: brokerage at hiring a business premise at Prešernov trg
Bežigrad cinema: realisation of handover and acceptance of facility under trust
Bežigrad cinema: in 2009 we launched marketing activities (lease, sale) of the Bežigrad cinema facility
AS, facility-Celovška 206, KD Banka, Bežigrad cinema: real estate advising and brokerage; reviewing, arranging and
obtaining the missing documentation.
Real estate management
In accordance with the real estate division development strategy and the cost management synergy, KD Kvart took over the
management and maintenance of the KD facilities in 2009, which also resulted in the transfer of the KD Group maintenance
staff to KD Kvart. In relation to this, new leases of KD companies were signed with the AS insurance company as the owner
of the premises at Celovška 206 and a multi-party agreement on real estate management with KD Kvart. A special
agreement on real estate management was signed also with the AS insurance company. In the field of operating expenses,
negotiations on lowering the prices were carried out in cooperation with the KD Group’s Purchase Department, which were
successfully completed in most cases.
R&R
Planning alternative solutions for the following facilities: Soseska 6, Vič cinema, Bežigrad cinema
67
The KD Group Annual Report 2009
Challenges in 2010:
To obtain an internal decision on the final selection of the architectural solution for the Šumi building.
To manage procedures for drawing up the project documentation to obtain a modified Building permit.
To manage the marketing procedures of the Šumi business and residential premises:
To search for new investment opportunities in Slovenia and abroad;
To design and launch a new website to present the Šumi project to potential customers;
To obtain funding for the Šumi project.
To implement tangible and competitive engineering in the realisation of the projects for the KD Group.
To successfully complete sales or hire of unnecessary property in terms of business of KD (the Bežigrad cinema, Travessini
palace, Vič cinema).
To introduce a quality and efficient maintenance system for the KD Group.
Company:
KD Kvart, nepremičninska in holdinška dejavnost, d.o.o.
Address: Levstikova 14, 1000 Ljubljana
Telephone: + 386 1 24 45 050
Fax: + 386 1 24 45 055
E-mail: kdkvart@kd-group.si
Website: www.kd-group.si
Management Board (31 December 2009): Miha Gostiša, Director
68
Consolidated Financial Statements
of the KD Group
for the year ended 31 December 2009
69
The Group KD Group Annual Report 2009
Consolidated Financial Statements as at and for the year ended 31 December 2009
CONTENTS
Consolidated income statement ............................................................................................................................ 73
Consolidated statement of comprehensive income............................................................................................... 74
The notes are an integral part of these consolidated financial statements............................................................ 74
Consolidated balance sheet .................................................................................................................................. 75
Consolidated statement of changes in equity ....................................................................................................... 76
Consolidated cash flow statement ........................................................................................................................ 78
Notes to the consolidated financial statements ..................................................................................................... 80
1. General information ...................................................................................................................................... 80
2. Summary of significant accounting policies .................................................................................................. 80
3. Significant accounting judgements, estimates and assumptions ................................................................ 105
4. Comparatives .............................................................................................................................................. 109
5. Risk management ....................................................................................................................................... 110
6. Segment reporting ...................................................................................................................................... 139
7. Property, plant and equipment .................................................................................................................... 143
8. Investment property .................................................................................................................................... 144
9. Intangible assets ......................................................................................................................................... 145
10. Investments in associates ........................................................................................................................... 147
11. Financial assets .......................................................................................................................................... 149
12. Receivables ................................................................................................................................................ 153
13. Inventories .................................................................................................................................................. 154
14. Cash and cash equivalents ......................................................................................................................... 154
15. Equity .......................................................................................................................................................... 155
16. Other reserves and retained earnings......................................................................................................... 156
17. Borrowings .................................................................................................................................................. 157
18. Insurance contracts liabilities ...................................................................................................................... 158
19. Derivative financial instruments .................................................................................................................. 161
20. Trade and other payables ........................................................................................................................... 161
21. Deferred tax ................................................................................................................................................ 161
22. Revenue...................................................................................................................................................... 163
23. Expenses .................................................................................................................................................... 164
24. Investment income ...................................................................................................................................... 166
25. Net realised gains on financial assets available for sale ............................................................................. 166
26. Net fair value gains on assets at fair value through profit or loss ................................................................ 167
27. Operating loss before interests, tax, exchange differences and influence of associates ............................ 167
28. Finance costs .............................................................................................................................................. 167
29. Income tax expense .................................................................................................................................... 167
30. Earnings per share .................................................................................................................................... 168
31. Dividends per share .................................................................................................................................... 168
32. Acquisitions and disposals of subsidiaries .................................................................................................. 168
33. Related-party transactions .......................................................................................................................... 170
34. Events after the balance sheet date............................................................................................................ 172
70
71
The Group KD Group Annual Report 2009
Consolidated Financial Statements as at and for the year ended 31 December 2009
Statement of management's responsibilities
Pursuant to Article 60 of the Companies Act, the members of Board of Directors of the KD Group affirm that the annual report
of the KD Group for 2009, including the statement on management, is compiled and published in accordance with the
Companies Act, the Financial Instruments Market Act and the International Financial Reporting Standards. Board of directors
of KD Group d. d. confirmed financial statements on April 14, 2010.
The Company's Board of Directors hereby:
- approves the financial statements of the KD Group, as well as the applied accounting policies and notes to the
financial statements;
- affirms, that the annual report of the KD Group for 2009, with all constituent parts, is compiled in accordance with
valid legislation and the International Financial Reporting Standards;
- confirms that the financial statements of the KD Group is a true and fair presentation of the Company's financial
position and the results of its operations for 2009;
- declares that the financial statements of the KD Group are compiled under the assumption of a going concern, that
the selected accounting policies have been applied consistently and that any changes have been disclosed;
- states that it is responsible for the adoption of measures to prevent and detect fraud and misstatements, and for
preserving the value of the assets of the KD Group.
Pursuant to Article 110 of the Financial Instruments Market Act, the members of Board of Directors of the KD Group declare:
- that the financial report of the KD Group for 2009 is compiled in accordance with the International Financial
Reporting Standards, and that it is a true and fair presentation of the assets and liabilities, the financial position and
operating results of the KD Group;
- that the business report of the KD Group for 2009 includes a fair review of the development and operating results of
the Company, including a description of the principle risks to which the KD Group is exposed.
Ljubljana, April 22, 2010
Matjaž Gantar
President of Board of Directors
Aleksander Sekavčnik
Deputy President of Board of Directors
Dr. Draško Veselinovič
Member of Board of Directors, CEO
Peter Grašek
Member of Board of Directors, Deputy CEO
Tomaž Butina
Member of Board of Directors
Sergej Racman
Member of Board of Directors
72
The Group KD Group Annual Report 2009
Consolidated Financial Statements as at and for the year ended 31 December 2009
Consolidated income statement
(in EUR) Note 2009 2008
Gross premium 342,116,815 332,537,765
Premiums ceded to reinsurers (11,986,438) (11,255,070)
Net premiums 22 330,130,377 321,282,695
Fees and commissions income 22 10,849,086 14,410,812
Investment income 24 16,569,959 22,694,921
Net gains on available-for-sale financial assets 25 4,421,911 9,997,641
Impairment of available-for-sale financial assets 25 (2,926,357) (24,846,254)
Net gains / (losses) on assets at fair value through profit or loss 26 27,354,774 (101,432,513)
Net gains / (losses) – derivative financial instruments 26 (322,132) 6,319,371
Net finance income 55,947,241 (72,856,022)
Sales of goods and services 22 11,621,037 23,623,244
Other operating income 22 15,268,189 32,302,659
Other income 26,889,226 55,925,903
Gross benefits and claims paid 23 (283,528,827) (169,014,533)
Claims ceded to reinsurers 23 12,053,097 12,172,911
Net insurance contracts benefits and claims (271,475,730) (156,841,622)
Costs of services (68,689,724) (75,690,259)
Labour costs 23 (57,576,822) (64,405,668)
Other expenses 23 (33,657,053) (57,274,415)
Other expenses 23 (159.923.599) (197,370,342)
Operating profit 27 (18,432,485) (49,859,388)
Finance costs 28 (9,563,914) (8,023,466)
Share of profit of associates 10 (23,426,946) (27,407,028)
(32,990,860) (35,430,494)
Profit before tax (51,423,345) (85,289,882)
Income tax expense 29 7,199,907 8,285,899
Net profit or loss for the year (44,223,438) (77,003,983)
Attributable to:
Equity holders of the parent (43,887,570) (77,217,976)
Minority interests (335,868) 213,993
(44,223,438) (77,003,983)
Earnings per share for profit attributable to the equity holders
of the Company during the year (expressed in EUR per share)
- basic and diluted 30 (16,93) (29.41)
The notes are an integral part of these consolidated financial statements.
73
The Group KD Group Annual Report 2009
Consolidated Financial Statements as at and for the year ended 31 December 2009
Consolidated statement of comprehensive income
(in EUR) 1. 1. - 30. 12. 2009 1. 1. - 31. 12. 2008
Profit for the year (44,223,438) (77,003,983)
Other comprehensive income
Net (loss)/gain on available for sale financial assets 7,572,878 (68,011,703)
Changes of revaluation reserves - associates 559,924 (288,334)
Income tax effect (1,655,662) 12,046,306
6,477,140 (56,253,731)
Net movement of cash flow hedges 70,715 (317,425)
Income tax (14,140) 70,139
56,575 (247,286)
Exchange differences on translation of foreign operations (74,229) (2,919,677)
Other comprehensive income for the year, net of tax 6,459,486 (59,420,694)
Total comprehensive income for the year, net of tax (37,763,952) (136,424,677)
Total comprehensive income for the year, net of tax attributable to:
- equity holders of the parent (38,000,854) (136,397,326)
- non-controlling interests 236,902 (27,351)
Total (37,763,952) (136,424,677)
The notes are an integral part of these consolidated financial statements.
74
The Group KD Group Annual Report 2009
Consolidated Financial Statements as at and for the year ended 31 December 2009
Consolidated balance sheet
31.12.2008 31.12.2007
(in EUR) Note 31.12.2009
restated restated
ASSETS
Property, plant and equipment 7 35,125,412 36,303,670 83,867,010
Investment property 8 29,813,540 28,707,587 20,601,521
Intangible assets 9 71,325,802 68,228,028 87,896,641
Investments in associates 10 52,308,751 81,077,285 71,687,821
Financial assets:
- loans and other receivables 11 90,335,200 96,742,037 56,598,625
- credits to banks 4,896,696 - -
- credits to non-banking clients 14,110,082 - -
- other loans and receivables 71,328,422 96,742,037 56,598,625
- at fair value through profit or loss 11 36,695,860 33,692,752 59,425,329
- held to maturity 11 16,461,698 7,844,709 7,590,164
- available for sale 11 177,308,048 173,911,332 305,845,228
Derivative financial instruments 1.146.675 - -
321,947,481 312,190,830 429,459,346
Unit-linked investments of policyholders 146,036,822 78,607,121 115,158,176
Reinsurance assets 18 19,449,008 17,362,703 11,004,824
Investment contracts 17,648,068 16,425,104 15,669,491
Deferred tax asset 21 29,682,588 20,427,164 -
Income tax receivable 490,870 7,260,081 3,102,335
Inventories 13 13,443,059 13,932,808 12,200,210
Insurance receivables and other receivables 12 57,881,610 69,848,127 67,615,294
Deferred acquisition costs 12 8,103,645 11,566,010 8,248,809
Deferred expenses and accrued revenues 12 3,798,016 2,221,991 2,075,776
Cash and cash equivalents 14 40,730,072 31,305,192 27,692,313
Total assets 847,784,744 795,463,701 956,279,567
EQUITY
Capital and reserves attributable to equity holders of the company
Share capital 15 98,215,757 98,215,757 98,215,757
Capital reserves 15 60,471,037 104,395,312 104,395,312
Profit reserves 16 4,048,103 4,048,103 17,850,609
Treasury shares 15 (3,852,955) (3,852,955) (3,852,955)
Revaluation reserve 16 785,639 (5,101,077) 54,078,273
Retained earnings 16 (10,591,492) (10,295,314) 56,867,744
149,076,089 187,409,826 327,554,740
Minority interest 2,528,930 4,837,468 11,011,536
Total equity 151,605,019 192,247,294 338,566,276
LIABILITIES
Insurance contract liabilities 18 296,097,984 279,766,288 258,028,873
Investment contract liabilities 18 17,703,254 16,394,308 15,668,418
Unit-linked liabilities of policyholders 18 140,108,844 79,308,743 112,978,279
Financial liabilities 17 194,705,529 181,557,903 164,250,682
- time deposit 15,530,894 - -
- other financial liabilities 179,174,635 181,557,903 164,250,682
Derivative financial instruments 19 1,426,656 350,696 6,312,734
Other provisions and long-term accruals 20 2,607,327 2,862,590 4,582,141
Income tax liability 1,528,147 350,717 7,296,627
Deferred tax liability 21 1,418,370 - 2,308,659
Dividends Payable 20 686,098 1,435,220 360,202
Insurance payables and other payables 20 31,510,435 33,627,541 38,705,893
Accrued expenses and deferred income 20 8,387,081 7,562,401 7,220,783
Total liabilities 696,179,725 603,216,407 617,713,291
Total equity and liabilities 847,784,744 795,463,701 956,279,567
The notes are an integral part of these consolidated financial statements.
75
The Group KD Group Annual Report 2009
Consolidated Financial Statements as at and for the year ended 31 December 2009
Consolidated statement of changes in equity
Attributable to equity holders of the parent
Share Capital Profit Treasury Revaluation Retained Minority
capital reserves reserves shares reserves earnings interests Total equity
(in EUR)
Balance at 1 January
2009 98,215,757 104,395,312 4,048,103 (3,852,955) (5,101,077) (10,295,314) 4,837,468 192,247,294
Profit for the year - - - - - (43,887,570) (335,868) (44,223,438)
Other comprehensive
income - - - - 5,886,716 - 572,770 6,459,486
Total recognised
income of equity
holders - - - - 5,886,716 (43,887,570) 236,902 (37,763,952)
Issue of share capital to
minority shareholders - - - - - - - -
Dividends relating to
2008 - - - - - (166,630) (214,581) (381,211)
Minority interest arising
on business
combinations - - - - - - 339,520 339,520
Other changes - - - - - (166,253) (54,552) (220,805)
Reserves - (43,924,275) - - - 43,924,275 - -
Increase in equity share
of associates - - - - - - - -
Increase in equity share
of subsidiaries - - - - - - (1,392,970) (1,392,970)
Disposal of a stake in a
company - - - - - - (1,222,857) (1,222,857)
Total - (43,924,275) - - - 43,591,392 (2,545,440) (2,878,323)
Balance at 31
December 2009 98,215,757 60,471,037 4,048,103 (3,852,955) 785,639 (10,591,492) 2,528,930 151,605,019
The notes are an integral part of these consolidated financial statements.
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The Group KD Group Annual Report 2009
Consolidated Financial Statements as at and for the year ended 31 December 2009
Consolidated statement of changes in equity
Attributable to equity holders of the parent
Share Capital Profit Treasury Revaluation Retained Minority
capital reserves reserves shares reserves earnings interests Total equity
(in EUR)
Balance at 1 January
2008 98,215,757 104,395,312 17,850,609 (3,852,955) 54,078,273 58,565,835 11,011,536 340,264,367
Restatement of
opening balance - - - - - (1,698,091) - (1,698,091)
Balance at 1 January
2008 98,215,757 104,395,312 17,850,609 (3,852,955) 54,078,273 56,867,744 11,011,536 338,566,276
Profit for the year - - - - - (77,217,976) 213,993 (77,003,983)
Other comprehensive
income - - - - (59,179,350) - (241,344) (59,420,694)
Total recognised
income of equity
holders - - - - (59,179,350) (77,217,976) (27,351) (136,424,677)
Issue of share capital to
minority shareholders - - - - - - 32,301 32,301
Dividends relating to
2007 - - - - - (19,744,507) (257,031) (20,001,538)
Minority interest arising
on business
combinations - - - - - - - -
Other changes - - - - - 1,667,879 - 1,667,879
Reserves - - (13,802,506) - - 13,802,506 - -
Increase in equity share
of associates - - - - - 14,329,040 - 14,329,040
Increase in equity share
of subsidiaries - - - - - - (5,879,337) (5,879,337)
Disposal of a stake in a
company - - - - - - (42,650) (42,650)
Total - - (13,802,506) - - 10,054,918 (6,146,717) (9,894,305)
Balance at 31
December 2008 98,215,757 104,395,312 4,048,103 (3,852,955) (5,101,077) (10,295,314) 4,837,468 192,247,294
The notes are an integral part of these consolidated financial statements.
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The Group KD Group Annual Report 2009
Consolidated Financial Statements as at and for the year ended 31 December 2009
Consolidated cash flow statement
(in EUR) Note 2009 2008
CASH FLOWS FROM OPERATING ACTIVITIES
Profit before tax (51,423,345) (85,289,882)
Adjustments for:
- Depreciation of PPE 7 3,562,971 5,771,708
- Depreciation of investments property 8 558,933 642,637
- Amortisation/depreciation 9 1,936,761 1,509,026
- (Gain)/loss on sale of PPE 110,028 (991,548)
- (Gain)/loss on sale of intangible assets 1,355 21,193
- (Gain)/loss on sale of investment property - -
- Impairment of goodwill 9 5,904,886 25,722,775
- Net movements in provisions for liabilities and charges 18.1 18,417,035 (18,290,000)
- Net movements in investment contracts 1,373,090 722,890
- Net movements in employee benefits 20 (255,263) 654,941
- Excess on acquisition of subsidiary 22.2 620,680 (8,994,904)
- Gain from increase in the share capital of a subsidiary 22.2 - -
- Gain from acquisition of associates 10 - (5,130,921)
- Investment income 24 (16,569,959) (22,694,921)
- Net fair value gains on available-for-sale securities 25 (4,421,911) (9,997,641)
- Impairment of AFS 25 (2,927,247) 24,846,254
- Net fair value gains on assets at fair value through profit or loss 26 4,837,568 95,113,142
- Impairment of trade receivables and loans 9,355,631 2,722,944
- Finance cost 28 9,563,914 8,023,466
- Share of profit of associates 10 23,426,946 27,407,029
Changes in working capital
- Inventories 13 (489,749) (1,732,598)
- Trade and other receivables (578,717) (14,374,533)
- Trade and other payables (114,996) 23,681,074
Net (purchase)/proceeds of operating assets 11
- Available-for-sale financial assets (5,499,681) 45,407,191
- Financial assets at fair value through profit or loss 873,866 (17,038,870)
- Investments held to maturity 9,676,810 (254,545)
- Increases of borrowings (KD Banka) 9,961,240 -
Dividends received 2,318,229 7,870,526
Cash generated from operations 20,219,075 85,326,433
Interest paid (7,847,731) (9,665,671)
Income tax paid (2,051,617) (12,638,848)
NET CASH FLOWS FROM OPERATING ACTIVITIES 10,319,727 63,021,914
78
The Group KD Group Annual Report 2009
Consolidated Financial Statements as at and for the year ended 31 December 2009
(in EUR) Note 2009 2008
CASH FLOWS FROM INVESTING ACTIVITIES
Acquisition of subsidiary, net of cash acquired 32 (2,647,049) 12,192,046
Increase in equity share of subsidiaries (1,822,573) (10,409,684)
Acquisition of associates 10 (4,018,887) (14,571,598)
Disposals of associates 10 9,808,855 2,962,628
Purchases of property, plant and equipment 7 (4,644,503) (17,653,619)
Proceeds from sale of property, plant and equipment 2,791,852 7,626,628
Purchases of intangible assets 9 (10,091,412) (5,353,929)
Proceeds from sale of intangible assets 5,260,956 26,908
Purchases of investment property 8 (1,555,931) (1,649,333)
Proceeds from sale of investment property 68,567 536,071
Loans granted to related parties 33 (6,782,642) (14,712,870)
Loan repayments received from related parties 33 8,511,098 11,533,545
Loans and deposits granted (311,816,857) (302,830,052)
Loan and deposit payments received 328,473,157 249,166,606
Interest received 2,306,550 2,096,420
Dividends received from associates 10 61,473 5,874,425
NET CASH FLOWS USED IN INVESTING ACTIVITIES 13,902,654 (75,165,808)
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from issuance of ordinary shares – minority interest - 32,301
Purchase of treasury shares - -
Disposal of treasury shares - -
Proceeds from borrowings 65,162,870 86,357,994
Repayment of borrowings (79,959,157) (51,281,218)
Dividends paid to Company's shareholders 16 - (19,744,507)
Dividends paid to minority interest - (48,289)
NET CASH FLOWS USED IN FINANCING ACTIVITIES (14,796,287) 15,316,281
NET INCREASE IN CASH AND CASH EQUIVALENTS 9,426,094 3,172,387
CASH AND CASH EQUIVALENTS AT BEGINNING OF THE YEAR 31,305,192 27,692,313
Foreign exchange gains on cash and cash equivalents (1,214) 440,492
CASH AND CASH EQUIVALENTS AT END OF THE YEAR 40,730,072 31,305,192
The notes are an integral part of these consolidated financial statements.
79
The Group KD Group Annual Report 2009
Notes to Consolidated Financial Statements as at and for the year ended 31 December 2009
Notes to the consolidated financial statements
1. General information
The principal activities of KD Group d. d. (“the Company”) and its subsidiaries (“the Group”) are quite diversified, namely, from
insurance to asset management financial services, banking and many others (real estate/immoveable property, publishing,
etc.).
KD Group d. d. is a public limited company with its registered office in Ljubljana, Celovška 206, Slovenia. Its shares are listed
on the OTC market of the Ljubljana Stock Exchange. The Company’s ultimate parent entity is KD d. d., with its registered
office in Ljubljana, Celovška 206, Slovenia.
These consolidated financial statements have been approved for issue by the Board of Directors on 22 April 2010 and can be
obtained from the Company’s registered office in Ljubljana, Celovška 206, Slovenia.
2. Summary of significant accounting policies
2.1 Basis for the preparation of financial statements
The accounting policies used are consistent with those applied in the previous year, except for the newly adopted
standards and interpretations as presented below.
IAS 1 Revised Presentation of Financial Statements
The revised Standard separates owner and non-owner changes in equity. The statement of changes in equity includes only
details of transactions with owners, with non-owner changes in equity presented as a single line. In addition, the Standard
introduces the statement of comprehensive income; it presents all items of recognised income and expense, either in one
single statement, or in two linked statements. TheGroup has elected to present two statements.
IAS 23 Borrowing Costs (Revised)
The definition of borrowing costs is revised to consolidate the two types of items that are considered components of ‘borrowing
costs’ into one - the interest expense calculated using the effective interest rate method in accordance with IAS 39. The KD
Group has amended its accounting policy accordingly. This amendment did not have any impact on the Group’s financial
statements
IFRS 2 Share-based Payment - Vesting Conditions and Cancellations
The Standard has been amended to clarify the definition of vesting conditions and to prescribe the accounting treatment of an
award that is effectively cancelled because a non-vesting condition is not satisfied. The adoption of this amendment did not
have any impact on the financial position or performance of the Group.
IFRS 7 Financial Instruments: Disclosures
The amended standard requires additional disclosure about fair value measurement and liquidity risk. Fair value
measurements are to be disclosed by source of inputs using a three level hierarchy for each class of financial instrument. In
addition, reconciliation between the beginning and ending balance for Level 3 fair value measurements is now required, as
well significant transfers between Level 1 and Level 2 fair value measurements. The amendments also clarify the
requirements for liquidity risk disclosures. The fair value measurement disclosures and the liquidity risk disclosures are
impacted by the amendments (Note 5.6.)
IFRS 8 Operating Segments
The new Standard requires an entity to adopt “management approach” to reporting on the financial performance of its operating
segments. As such it replaces the requirement for determining and reporting by business and regional segments. If the
numbers used by management for internal performance measurement of operating segments are different to the numbers
reported in the financial statements, this requires a reconciliation of numbers used by management to the financial statements.
IAS 32 Financial Instruments: Presentation and IAS 1 Puttable Financial Instruments and Obligations Arising on Liquidation
The Standards have been amended to allow a limited scope exception for puttable financial instruments to be classified as
equity if they fulfil a number of specified criteria. The adoption of this amendment did not have any impact on the financial
position or performance of the Group.
80
The Group KD Group Annual Report 2009
Notes to Consolidated Financial Statements as at and for the year ended 31 December 2009
IFRIC 9 Reassessment of Embedded Derivatives and IAS 39 Financial Instruments: Recognition and Measurement
These amendments to IFRIC 9 require an entity to assess whether an embedded derivative must be separated from a host
contract when the entity reclassifies a hybrid financial asset out of the fair value through profit or loss category. This
assessment is to be made based on circumstances that existed on the later of the date the entity first became a party to the
contract and the date of any contract amendments that significantly change the cash flows of the contract. IAS 39 now states
that if an embedded derivative cannot be reliably measured, the entire hybrid instrument must remain classified as at fair
value through profit or loss. The adoption of this amendment did not have any impact on the financial position or performance
of the Group.
IFRIC 12 Service Concession Agreement
This interpretation outlines the approach to account for contractual arrangements arising from entities providing public
services. It provides that the operator should not account for infrastructure as property, plant and equipment, but rather
recognize a financial asset and/or intangible asset. The adoption of this amendment did not have any impact on the financial
position or performance of the Group.
IFRIC 13 Customer Loyalty Programmes
This interpretation requires customer loyalty credits to be accounted for as a separate component of the sales transaction in
which they are granted. A portion of the fair value of the consideration received is allocated to the award credits and deferred.
This is then recognised as revenue over the period that the award credits are redeemed. The adoption of this amendment did
not have any impact on the financial position or performance of the Group.
IFRIC 15 Agreement for the Construction of Real Estate
The interpretation is to be applied retrospectively. It clarifies when and how revenue and related expenses from the sale of a
real estate unit should be recognised if an agreement between a developer and a buyer is reached before the construction of
the real estate is completed. Furthermore, the interpretation provides guidance on how to determine whether an agreement is
within the scope of IAS 11 or IAS 18. The adoption of this amendment did not have any impact on the financial position or
performance of the Group.
IFRIC 16 Hedges of a Net Investment in a Foreign Operation
The interpretation is to be applied prospectively. IFRIC 16 provides guidance on the accounting for a hedge of a net
investment. As such it provides guidance on identifying the foreign currency risks that qualify for hedge accounting in the
hedge of a net investment, where within the group the hedging instruments can be held in the hedge of a net investment and
how an entity should determine the amount of foreign currency gain or loss, relating to both the net investment and the
hedging instrument, to be recycled on disposal of the net investment. The adoption of this amendment did not have any
impact on the financial position or performance of the Group.
81
The Group KD Group Annual Report 2009
Notes to Consolidated Financial Statements as at and for the year ended 31 December 2009
Improvements to IFRSs
In May 2008 the Board issued its first omnibus of amendments to its standards, primarily with a view to removing
inconsistencies and clarifying wording. There are separate transitional provisions for each standard.
IAS 1 Presentation of Financial Statements
Assets and liabilities classified as held for trading in accordance with IAS 39 Financial Instruments: Recognition and
Measurement are not automatically classified as current in the statement of financial position. The Group amended its
accounting policy accordingly and analysed whether Management’s expectation of the period of realisation of financial assets
and liabilities differed from the classification of the instrument. This did not result in any re-classification of financial
instruments between current and non-current in the statement of financial position. Improvement does not have any impact on
the Groups financial statements.
IAS 8 Accounting Policies, Changes in Accounting Estimates and Errors
Clarifies that only implementation guidance that is an integral part of an IFRS is mandatory when selecting accounting
policies. Improvement does not have any impact on the Groups financial statements.
IAS 10 Events after the Reporting Period
Clarifies that dividends declared after the end of the reporting period are not obligations. Improvement does not have any
impact on the Groups financial statements.
IAS 16 - Property, Plant and Equipment
Replaces the term “net selling price” with “fair value less costs to sell” to be consistent with IFRS 5 and IAS 36. The
Company/Group amended its accounting policy accordingly, which did not result in any change in its financial position.
Items of property, plant and equipment held for rental that are routinely sold in the ordinary course of business after rental, are
transferred to inventory when rental ceases and they are held for sale. Proceeds of such sales are subsequently shown as
revenue. Cash payments on initial recognition of such items and the cash receipts from rents and subsequent sales are all
shown as cash flows from operating activities.
IAS 18 Revenue
Replaces the term ‘direct costs’ with ‘transaction costs’ as defined in IAS 39.
IAS 19 Employee Benefits
Curtailments and negative past service costs
Revises the definition of ‘past service costs’ to include reductions in benefits related to past services (‘negative past service
costs’) and to exclude reductions in benefits related to future services that arise from plan amendments. Amendments to
plans that result in a reduction in benefits related to future services are accounted for as a curtailment.
Plan administration costs
Revises the definition of ‘return on plan assets’ to exclude plan administration costs if they have already been included in the
actuarial assumptions used to measure the defined benefit obligation.
Replacement of term ‘fall due’
Revises the definition of ‘short-term’ and ‘other long-term’ employee benefits to focus on the point in time at which the liability
is due to be settled.
Guidance on contingent liabilities
Deletes the reference to the recognition of contingent liabilities to ensure consistency with IAS 37 Provisions, Contingent
Liabilities and Contingent Assets.
Improvement does not have any impact on the Groups financial statements.
IAS 20 Accounting for Government Grants and Disclosures of Government Assistance
Government loans with no interest or a below-market interest rate
Loans granted with no or low interest rates will not be exempt from the requirement to impute interest. The difference between
the amount received and the discounted amount is accounted for as a government grant. Improvement does not have any
impact on the Groups financial statements.
82
The Group KD Group Annual Report 2009
Notes to Consolidated Financial Statements as at and for the year ended 31 December 2009
IAS 23 – Borrowing Costs
The definition of borrowing costs is revised to consolidate the two types of items that are considered components of
‘borrowing costs’ into one - the interest expense calculated using the effective interest rate method calculated in accordance
with IAS 39. The Group has amended its accounting policy accordingly. Improvement does not have any impact on the
Groups financial statements.
IAS 27 – Consolidated and Separate Financial Statements
Measurement of a subsidiary held for sale in separate financial statements
When a parent entity accounts for a subsidiary at fair value in its separate financial statements, this treatment continues when
the subsidiary is subsequently classified as held for sale. Improvement does not have any impact on the Groups financial
statements.
IAS 28 - Investments in Associates
Required disclosures when investments in associates are accounted for at fair value through profit or loss
If an associate is accounted for at fair value through profit or loss, only the requirement of IAS 28 to disclose the nature and
extent of any significant restrictions on the ability of the associate to transfer funds to the entity in the form of cash or
repayment of loans applies.
Impairment of investment in an associate
An investment in an associate is a single asset for the purpose of conducting the impairment test - including any reversal of
impairment. Therefore, any impairment is not separately allocated to the goodwill included in the investment balance.
Improvement does not have any impact on the Groups financial statements.
IAS 29 – Financial Reporting in Hyperinflationary Economies
Description of measurement basis in financial statements
Revises the reference to the exception that assets and liabilities should be measured at historical cost, such that it notes
property, plant and equipment as being an example, rather than implying that it is a definitive list. Improvement does not have
any impact on the Groups financial statements.
IAS 31 - Interests in Joint Ventures
Required disclosures when investments in jointly controlled entities are accounted for at fair value through profit or loss
If a joint venture is accounted for at fair value, the only disclosure requirements of IAS 31 are those relating to the
commitments of the venturer and the joint venture, as well as summary financial information about the assets, liabilities,
income and expenses. Improvement does not have any impact on the Groups financial statements.
IAS 34 – Interim Financial Reporting
Clarifies that earnings per share is disclosed in interim financial reports if an entity is within the scope of IAS 33. Improvement
does not have any impact on the Groups financial statements.
IAS 36 Impairment of Assets
Disclosure of estimates used to determine recoverable amount
When discounted cash flows are used to estimate ‘fair value less costs to sell’, the same disclosures are required as when
discounted cash flows are used to estimate ‘value in use’. Improvement does not have any impact on the Groups financial
statements.
IAS 38 – Intangible Assets
Unit of production method of amortisation
The improvement deletes references to there being rarely, if ever, persuasive evidence to support an amortisation method for
finite life intangible assets that results in a lower amount of accumulated amortisation than under the straight-line method,
thereby effectively allowing the use of the unit of production method. The Group reassessed the useful lives of intangible
assets and found the straight-line method still applicable.
Advertising and promotional activities
Expenditure on advertising and promotional activities is recognised as an expense when the entity either has the right to
access the goods or has received the services. Advertising and promotional activities now specifically include mail order
catalogues. This amendment has no impact on the Groups financial statements.
83
The Group KD Group Annual Report 2009
Notes to Consolidated Financial Statements as at and for the year ended 31 December 2009
IAS 39 Financial instruments: Recognition and Measurement
Reclassification of derivatives into or out of the classification of at fair value through profit or loss
Changes in circumstances relating to derivatives - specifically derivatives designated or de-designated as hedging
instruments after initial recognition - are not reclassifications.
When financial assets are reclassified as a result of an insurance company changing its accounting policy in accordance with
paragraph 45 of IFRS 4 Insurance Contracts, this is a change in circumstance, not a reclassification.
Designation and documentation of hedges at the segment level
Removes the reference to a ‘segment’ when determining whether an instrument qualifies as a hedge.
Applicable effective interest rate on cessation of fair value hedge accounting
Requires use of the revised effective interest rate (rather than the original effective interest rate) when re-measuring a debt
instrument on the cessation of fair value hedge accounting. Improvement does not have any impact on the Groups financial
statements.
IAS 40 – Investment property
Property under construction or development for future use as investment property
Revises the scope (and the scope of IAS 16 Property, Plant and Equipment) to include property that is being constructed or
developed for future use as an investment property. Where an entity is unable to determine the fair value of an investment
property under construction, but expects to be able to determine its fair value on completion, the investment under
construction will be measured at cost until fair value can be determined or construction is complete.
Revises the conditions for a voluntary change in accounting policy to be consistent with IAS 8. Clarifies that the carrying
amount of investment property held under lease is the valuation obtained increased by any recognised liability.
Improvement does not have any impact on the Groups financial statements.
IAS 41 Agriculture
Additional biological transformations
Removes the prohibition to take into account cash flows resulting from any additional transformations when estimating fair
value. Instead, cash flows that are expected to be generated in the ‘most relevant market’ are taken into account.
Discount rate for fair value calculations
Removes the reference to the use of a pre-tax discount rate to determine fair value, thereby allowing use of either a pre-tax or
a post-tax discount rate depending on the valuation methodology used. Improvement does not have any impact on the
Groups financial statements.
IFRS 5 Non-current Assets Held for Sale and Discontinued Operations
Plan to sell the controlling interest in a subsidiary When a subsidiary is held for sale, all of its assets and liabilities will be
classified as held for sale under IFRS 5, even when the entity retains a non-controlling interest in the subsidiary after the sale.
This amendment is effective for periods commencing 1 July 2009. Improvement does not have any impact on the Groups
financial statements.
IFRS 7 Financial Instruments Disclosures
Removes the reference to ‘total interest income’ as a component of finance costs. Improvement does not have any impact on
the Groups financial statements.
84
The Group KD Group Annual Report 2009
Notes to Consolidated Financial Statements as at and for the year ended 31 December 2009
Early application of IFRS and IFRIC's interpretations not yet effective
Group has not early adopted any standards or interpretations issued and not yet effective.
The following new and amended IFRIC will be adopted in future periods as required by International Financial
Reporting Standards:
IFRIC 17 Distribution of Non-Cash Assets to Owners
IFRIC 17 becomes effective for annual periods beginning on 1 July 2009. The interpretation provides guidance on how to
account for non-cash distribution of assets to owners. The interpretation clarifies when an entity should recognize the liability,
how it should be measured, and how to recognize and measure the related assets, as well as when such assets and liabilities
should be derecognised in books of accounts.
IFRIC 18 Transfers of Assets from Customers
IFRIC 18 applies to transfers of assets from customers on or after 1 July 2009.
The interpretation provides guidance on how to account for property, plant and equipment transferred from customers or cash
received for acquisition or construction of certain assets. This guidance applies only to assets used by an entity to connect the
customer to a network or to provide the customer with an ongoing access to a supply of goods, services or, in some cases, to
do both. The entity must identify the service or services rendered and allocate the received payment (the fair value of assets)
to each identifiable service. Revenue should be recognised on delivery or performance of each individual service by the entity.
The following new and amended IFRIC’s will be adopted in future periods as required by International Financial
Reporting Standards and if adopted by the EU.
IFRIC 19 Extinguishing Financial Liabilities with Equity Instruments
The interpretation becomes effective on 1 July 2010 and provides guidance on how to account for the extinguishment of a
financial liability by the issue of equity instruments (a debt for equity swaps). The interpretation clarifies how to measure and
recognise such swaps.
The following new standards will be adopted in future periods as required by International Financial Reporting
Standards and the EU.
IFRS 3R – Business Combinations and IAS 27R – Consolidated and Separate Financial Statements.
The revised standards were issued in January 2008 and become effective for financial years beginning on 1 July 2009. IFRS
3R introduces a number of changes in the accounting for business combinations that will impact the amount of goodwill
recognised, the reported results in the period that an acquisition occurs, and future reported results. IAS 27R requires that a
change in the ownership interest of a subsidiary is accounted for as an equity transaction. Therefore, such a change will have
no impact on goodwill, nor will it give raise to a gain or loss. Furthermore, the amended standard changes the accounting for
losses incurred by the subsidiary as well as the loss of control of a subsidiary. The changes introduced by IFRS 3R and IAS
27R must be applied prospectively and will affect future acquisitions and transactions with minority interests.
IAS 39 – Financial Instruments: Recognition and Measurement – Eligible Hedged Items
These amendments to IAS 39 were issued in August 2008 and become effective for financial years beginning on or after 1
July 2009. The amendment addresses the designation of a one-sided risk in a hedged item, and the designation of inflation as
a hedged risk or portion in particular situations. It clarifies that an entity is permitted to designate a portion of the fair value
changes or cash flow variability of a financial instrument as a hedged item.
The following new and amended standards will be adopted in future periods as required by International Financial
Reporting Standards, if endorsed by the EU.
IFRS 2 – Cash-Settled Share-Based Payment Transactions in the Group
Applicable for periods beginning on or after 1 January 2009.
Amendments to IFRS 2 comprise three basic amendments: revised definition of share-based transactions and agreements,
the scope of IFRS2, and additional clarification of how to account for cash-settled share-based payment transactions in the
group.
IAS 32 Financial Instruments: Presentation, Classification of the Option to Purchase Shares Denominated in a Foreign
Currency
85
The Group KD Group Annual Report 2009
Notes to Consolidated Financial Statements as at and for the year ended 31 December 2009
Applicable for periods beginning on or after 1 February 2010.
The amended Standard allows an entity issuing puttable financial instruments denominated in foreign currency not to account
for these rights as derivatives but rather to recognize the effects in the profit or loss. These rights are classified as equity if
they fulfil a number of specified criteria.
IAS 24 – Related Party Disclosures
Applicable for periods beginning after 1 January 2011
Amendments to IAS 24 define in more detail and simplify definition of a related party. Furthermore the amended standard
reduces the scope of disclosures of transactions of a government owned entity with the government and other government
owned entities.
IFRS 9 – Financial Instruments
The Standard replaces IAS 39 and is applicable for periods beginning on 1 January 2013. The first part of the standard
introduces new requirements for classifying and measuring financial assets.
Improvements to IFRSs
In April 2009 the Board issued its second omnibus of amendments to its standards, primarily with a view to removing
inconsistencies and clarifying wording. There are separate transitional provisions for each standard. So far these
amendments have not been endorsed by the EU.
IFRS 2- Share-Based Payments – specification when to apply IFRS 2 and IFRS 3
IFRS 5 – Non-current Assets Held for Sale – Disclosure
IFRS 8- Operating Segments – Disclosure of Segments' assets
IAS 1 –Presentation of Financial Statements – current/non-current liabilities for swap instruments
IAS 7 – Statement of Cash Flows – classifying expenditure for unrecognized assets
IAS 17 – Leases – classifying land and buildings
IAS 18 - Revenue – designation whether an entity acts as a principal or an agent
IAS 36 – Impairment of Assets – the maximum unit to which goodwill may be attributed
IAS 38 – Intangible Assets – amendments as a result of new IFRS 3 Standard and amendments in relation to determining
fair value
IAS 39 – Financial Instruments – assessment of liquidating damages for prepayment of a credit as a derivative, cash flow
hedges
IFRIC 9 – Reassessment of Embedded Derivatives – impact of IFRS 3 and IFRIC 9
IFRIC 16 – Hedges of a Net Investment in a Foreign Operation– amendment of restriction to an entity allowed to have a
hedge
86
The Group KD Group Annual Report 2009
Notes to Consolidated Financial Statements as at and for the year ended 31 December 2009
2.2 Consolidated financial statements
2.2.1 Assets and liabilities according to expected maturity
(in EUR) 31.12.2009 31.12.2008
Non current assets
Financial assets 196,487,576 173,221,477
Reinsurance contracts 4,603,946 5,085,554
Insurance receivables and other receivables 10,207,953 19,036,827
Other non current assets 188,573,505 214,316,570
399,872,980 411,660,428
Current assets
Financial assets 143,107,973 155,394,457
Reinsurance contracts 14,845,062 12,277,149
Insurance receivables and other receivables 47,673,657 50,811,300
Other current assets 96,248,250 86,261,854
301,874,942 304,744,760
Unit-linked investments of policyholders 146,036,822 78,607,121
Total assets 847,784,744 795,012,309
(in EUR) 31.12.2009 31.12.2008
Non current liabilities
Insurance contracts 150,387,932 136,122,771
Investment contracts 17,654,644 16,272,396
Financial liabilities 112,433,921 109,225,022
Insurance liabilities and other liabilities 712,890 623,677
281,189,387 262,243,866
Current liabilities
Insurance contracts 145,710,052 141,558,178
Investment contracts 48,610 57,768
Financial liabilities 82,271,608 72,332,881
Insurance liabilities and other liabilities 30,797,545 33,003,864
Other current liabilities 16,053,679 12,561,624
274,881,494 259,514,315
Unit-linked liabilities of policyholders 140,108,844 79,308,743
Total liabilities 696,179,725 601,066,924
2.2.2 Subsidiaries
Subsidiaries are those companies for which the Company and its subsidiaries hold, directly or indirectly, more than one half of
voting rights. Subsidiaries are fully consolidated from the date on which control is transferred to the Group. They are de-
consolidated from the date on which control of the Company ceases.
The cost method of accounting is used to account for the acquisition of subsidiaries by measuring the acquisition value of the
investment first. The cost of an acquisition is measured as the fair value of the assets given, equity instruments issued and
liabilities incurred or assumed at the date of exchange, plus costs directly attributable to the acquisition.
87
The Group KD Group Annual Report 2009
Notes to Consolidated Financial Statements as at and for the year ended 31 December 2009
Identifiable assets acquired and liabilities and contingent liabilities assumed in a business combination are measured initially
at fair value at the acquisition date. The excess of the cost of acquisition over the fair value of the Group’s share of the
identifiable assets, liabilities and contingent liabilities is recorded as goodwill. If the cost of acquisition is less than the fair
value of the Group’s share of net assets acquired, the difference is recognised directly in the income statement.
Inter-company transactions, balances and unrealised gains on transactions as well as income, expenses and dividends
between Group companies have been eliminated. Subsidiaries’ accounting policies have been changed or adequately
restated where necessary to ensure consistency with the policies adopted by the Group. All Members of the Group have the
same balance sheet date.
2.2.3 Transactions and minority interests
The Group applies a policy of treating transactions with minority interests as transactions with parties external to the Group.
Purchases from minority interests result in goodwill (excess), being the difference between any consideration paid and the
relevant share acquired of the carrying value of net assets of the subsidiary. Disposals of minority interests result in gains and
losses for the Group that are recorded in the income statement. Minority interests are disclosed as a separate item of the
Group’s equity. Net profit or loss is divided into net profit (loss) of the majority owner and net profit (loss) of the minority
owner.
2.2.4 Associates
Associates are all entities over which the Group has a significant influence but not control, generally accompanying a direct or
indirect shareholding of between 20% and 50% of the voting rights. Investments in associates are accounted for under the
equity method of accounting according to which such investments are initially recognised at cost and are subsequently
increased or decreased by the Group’s share of the associate’s profit or loss. Dividends received from an associate reduce
the carrying amount of the investment.
The Group’s share of its associates’ post-acquisition profits or losses is recognised in the income statement. The Group’s
share of post-acquisition movements in associates’ reserves is recognised as a movement in the Group’s reserves.
If the Group’s share of losses of an associate equals or exceeds its interest in the associate, including unsecured receivables
to the associate, the Group discontinues recognising its share of further losses unless the Group has any legal or other
liabilities assumed on behalf of the associate. If the associate subsequently reports profits, the Group resumes recognising its
share of those profits only after its share of the profits equals the share of losses not recognised.
Unrealised gains on transactions between the Group and its associates are eliminated to the extent of the Group’s interest in
the associates. Accounting policies of associates have been changed where necessary to ensure consistency with the
policies adopted by the Group.
The Group’s investments in the internally managed mutual funds where the Group has a significant influence are treated as
investments in associated companies and are accounted for using the equity method. The unit-linked insurance funds are
categorised as financial assets designated at fair value through profit or loss at inception as permitted by IAS 28, Investments
in Associates (see Note 10).
In the case of a gradual purchase of affiliated companies, the Group recognises goodwill or negative goodwill resulting from
individual transactions. Negative goodwill is recognised in the profit or loss of the year during which the company became
associated (the part that refers to purchases made in that year). Negative goodwill in connection with purchases made in the
previous period however, is recognized directly in the retained earnings.
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The Group KD Group Annual Report 2009
Notes to Consolidated Financial Statements as at and for the year ended 31 December 2009
2.2.5 Subsidiaries
Registered office Percentage of ownership
Members of the Group – direct:
KD Skladi d. o. o. Ljubljana Slovenia 100.00%
KD Investments d. o. o. Zagreb Croatia 100.00%
KD Investments a. d. Belgrade Serbia 100.00%
SAI KD Investments s. a. Bucharest Romania 100.00%
KD Investments plc Sofia Bulgaria 100.00%
KD Investments Bratislava Slovakia 100.00%
KD Banka d. d. Ljubljana Slovenia 100.00%
KD Upravljanje imovinom d. o. o. Zagreb Croatia 100.00%
KD Capital Management s. a. Bucharest Romania 100.00%
KD Securities EAD, Sofia Bulgaria 100.00%
KD Asset Management b. v. Amsterdam Netherlands 100.00%
KD Life d. d. Kiev Ukraine 100.00%
KD Življenje d. d. Ljubljana Slovenia 100.00%
KD Life Asigurari s. a., Bucharest Romania 100.00%
KD Life a. d., Sofia Bulgaria 100.00%
SC KD Fond De Pensii s. a. Bucharest Romania 99.00%
Adriatic Slovenica d. d. Koper Slovenia 100.00%
KD Kapital d. o. o. Ljubljana Slovenia 100.00%
KD Private Equity d. o. o., Belgrade Serbia 100.00%
R.E. Invest d. o. o. Ljubljana Slovenia 100.00%
KD Kvart d. o. o. Ljubljana Slovenia 100.00%
Coloseum Multiplex Holdings b. v., Amsterdam Netherlands 100.00%
Firsthouse Investments Ltd., Limassol Cyprus 100.00%
Fontes Group d. o. o., Belgrade Serbia 100.00%
Gea College d. d. Ljubljana Slovenia 66.57%
World Life Group ltd., Limassol Cyprus 100,00%
OOO Sarbon Invest, Taškent Uzbekistan 100,00%
Members of the Group through subsidiaries
ABDS d. d. Sarajevo Bosnia and Herzegovina 95.72%
KD Finančna točka d. o. o. Ljubljana Slovenia 100.00%
KD Fund Advisors LLC, Delaware United States 90.00%
KD Financial point s. r. l. Bucharest Romania 100.00%
ZAP d. o. o. Murska Sobota Slovenia 100.00%
ČZD Kmečki Glas d. o. o. Ljubljana Slovenia 100.00%
Vrtnarstvo Celje d. o. o. Celje Slovenia 50.46%
VIB a. d. Banja Luka Bosnia and Herzegovina 51.00%
Gea College PIC d. o. o. Ljubljana Slovenia 100.00%
Gea College CVŠ d. o. o. Ljubljana Slovenia 100.00%
KD Fondovi a. d. Skopje Bosnia and Herzegovina 85.00%
KD Životno osiguranje d. d. Zagreb Croatia 100.00%
AS Neživotno osiguranje a. d. o. Beograd Serbia 99.82%
Manta Marine Ventures Ltd United States 100,00%
KD Financijska točka d. o. o. Zagreb Croatia 100,00%
KD Financial point, s. r. o. Bratislava Slovakia 100,00%
KD Mark d. o. o. Ljubljana Slovenia 100,00%
KD Financial point EOOD, Sofia Bulgaria 100,00%
Vitavizia d. o. o., Ljubljana Slovenia 100,00%
FM-NET d. o. o., Ljubljana Slovenia 100,00%
Gama Holdings b. v., Amsterdam Netherlands 100,00%
OOO Kredo Group, Taškent Uzbekistan 99,97%
Radio Kranj d. o. o., Kranj Slovenia 52,68%
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The Group KD Group Annual Report 2009
Notes to Consolidated Financial Statements as at and for the year ended 31 December 2009
2.3 Segment reporting
Business and geographical segments are parts of the Group’s operations that are subject to different rates of profitability,
opportunities for growth, future prospects and risks. A business segment is a distinguishable component of the Group that is
engaged in providing a group of related products or services and that is subject to risks and returns that are different from
those of other business segments. A geographical segment is a distinguishable component of the Group that is engaged in
providing products or services within a particular economic environment and that is subject to risks and returns that are
different from those of segments operating in other economic environments.
2.4 Foreign currency translation
Functional and presentation currency
Items included in the financial statements of each of the Group’s entities are measured using the currency of the primary
economic environment in which the entity operates (the "functional currency"). The consolidated financial statements are
presented in euros, which is the Group’s presentation currency.
Transactions and balances
Foreign currency transactions and balances are translated into the functional currency using the exchange rates prevailing at
the dates of the transactions. Foreign exchange gains and losses resulting from the settlement of such transactions and from
the translation at year-end exchange rates of monetary assets and liabilities denominated in foreign currencies are recognised
in the income statement.
If the transaction is recognised directly in equity, exchange differences from the conversion to the functional currency are also
recognised directly in equity. Exchange differences arising in respect of investments of the parent company in the capital of
subsidiaries abroad are recognised directly in other comprehensive income, and recognised in the income statement only on
disposal of the investments.
Foreign currency monetary items are translated on the balance sheet date using the reference rate of ECB or Bank of
Slovenia exchange rates (for currencies for which the ECB does not publish reference rates) on the last day of the year. Non-
monetary items that are measured in terms of historical cost in a foreign currency are translated using the mean exchange
rate of the Bank of Slovenia applicable at the date of transaction, while non-monetary items that are measured at fair value in
a foreign currency are translated using the reference rate of the ECB applicable at the date when the fair value was
determined.
In the context of changes in the fair value of monetary securities denominated in foreign currency classified as available for
sale, translation differences resulting from changes in the amortised cost of the security and other changes in the carrying
amount of the security are accounted for separately.. Translation differences related to changes in the amortised cost are
recognised in profit or loss, whereas other changes in the carrying amount are recognised in other comprehensive income.
Translation differences on non-monetary financial assets and liabilities are reported as part of the fair value gain or loss.
Translation differences on non-monetary financial assets and liabilities, such as equities held at fair value through profit or
loss, are recognised in profit or loss as part of the fair value gain or loss. Translation differences on non-monetary financial
assets, classified as available for sale, are included in other comprehensive income.
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The Group KD Group Annual Report 2009
Notes to Consolidated Financial Statements as at and for the year ended 31 December 2009
Group companies
The financial statements of all Group entities (none of which has the currency of a hyperinflationary economy) that have a
functional currency different from the presentation currency of the Group are translated into the presentation currency as
follows:
- assets and liabilities for each balance sheet presented are translated at the reference rate of ECB or Bank of
Slovenia exchange rates on the date of the balance sheet;
- income and expenses for each income statement are translated at the average annual reference rate of ECB or
Bank of Slovenia exchange rates;
- all resulting exchange differences are recognised as a separate component of equity (reserves).
Upon consolidation, exchange differences arising from the translation of the net investment in foreign entities are transferred
to other comprehensive income. When a foreign operation is sold, such exchange differences are recognised in the income
statement as part of the gain or loss on sale.
2.5 Property, plant and equipment
Property, plant and equipment are land, buildings and equipment used by the Group for the performance of its activities.
After initial recognition, property and equipment are carried at historical cost less accumulated depreciation and accumulated
impairment losses, if any (cost model). Historical cost includes expenditure that is directly attributable to the acquisition of the
items. Subsequent costs are included in the asset’s carrying amount or recognised as a separate asset, as appropriate, only
when it is probable that future economic benefits associated with the item will flow to the Group and the cost of the item can
be measured reliably. All other repairs and maintenance are charged to the income statement during the financial period in
which they are incurred. If the cost of an item of property, plant and equipment is significant, it is allocated to its individual
parts. If the parts are significant in relation to the total cost, and have different useful lives, each individual part of the asset is
accounted for separately.
An item of property and equipment is derecognised upon disposal or when no further economic benefits are expected from
the asset. The gain or loss arising from derecognition of an item of property or equipment is determined as the difference
between the disposal proceeds and the carrying amount of the item, and is recognised in other operating income or
expenses.
Depreciation
The Group systematically allocates to profit or loss the cost less residual value (depreciable amount) over the useful life of
each individual item of property, plant and equipment. The Group uses the straight-line depreciation method. Land is not
depreciated.
Depreciation is calculated individually.
The useful lives are as follows:
Property, plant and equipment
Buildings 20 to 59 years
Vehicles and machinery 3 to 10 years
Furniture, fittings and equipment 2 to 7 years
The assets’ residual values and useful lives are reviewed at least once a year on the balance sheet date and restated if
appropriate. If the asset’s recoverable amount is lower than its book value the asset is written down immediately to its
recoverable amount and the impairment loss is recognised in the income statement. The recoverable amount is the higher of
an asset's value in use and fair value less costs to sell (see Note 2.1.10).
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The Group KD Group Annual Report 2009
Notes to Consolidated Financial Statements as at and for the year ended 31 December 2009
2.6 Investment property
Investment property is property (land or a building, or part of a building, or both) held to earn rentals and/or for capital
appreciation or both, rather than for administrative purposes or sale in the ordinary course of business. Investment property is
initially measured at cost. After initial recognition, investment property of the Group is carried at its cost less accumulated
depreciation and accumulated impairment losses, if any (cost model), i.e. the same as property, plant and equipment. The
Group reviews once a year the proportion of investment property obtained by other companies in the Group under lease
agreements; in the consolidated balance sheet, the value of investmet property is recognised within the items of property,
plant and equipment.
The recognition and derecognition policies and methods of accounting for depreciation and impairment are defined under
property, plant and equipment. The costs of day-to-day servicing of the investment property (repairs and maintenance) are
expensed when incurred.
2.7 Intangible assets
After initial recognition, an intangible asset is carried at its cost less any accumulated amortisation and any accumulated
impairment losses (cost model). An entity assesses whether the useful life of an intangible asset is finite or indefinite. If finite,
it is amortised over its useful life. An intangible asset with an indefinite useful life is not amortised.
Goodwill
Goodwill represents the excess of the cost of acquisition over the fair value of the Group’s share of the net identifiable assets,
liabilities and contingent liabilities of the acquired subsidiary, and is disclosed under intangible assets with an indefinite useful
life.
Goodwill on acquisition of subsidiaries is included in intangible assets and carried at cost less accumulated impairment
losses. Goodwill on acquisitions of associates is included in investments in associates. Separately recognised goodwill is
tested annually, and any impairment is recognised in the income statement. Impairment losses on goodwill are not reversed.
Gains and losses on the disposal of an entity include the carrying amount of goodwill relating to the entity sold. Once a year
the adequacy of the goodwill is reviewed and any impairment loss is recognised in the profit and loss account. The reversal of
impairment of goodwill is not allowed. Gains and losses on disposal of subsidiaries also include the value of goodwill, which
refers to the disposed subsidiary.
Excess of fair value of the acquired identifiable assets, liabilities and contingent liabilities above the cost of their acquisition is
reassessed, and any excess remaining after the reassessment is recognised as income in the income statement.
Goodwill is allocated to cash-generating units for the purpose of impairment testing. Goodwill is allocated to the Group’s cash-
generating units that are expected to benefit from the synergies of the combination.
Other intangible assets
The Group’s intangible assets with a finite useful life include computer software and licences. The cost of acquired software
comprises the costs of acquisition and preparation of the asset for its intended use, and for licences it is the cost of
acquisition. Throughout the useful life of an individual item of an intangible asset the Group consistently allocates the amount
of its amortisation to individual accounting periods as amortisation at that time. Amortisation is calculated using the straight-
line method.
Amortisation is charged individually. The periods of amortisation of intangible assets with a finite useful life are the following:
Intangible assets:
Licences 3 to 5 years
Computer software 3 to 5 years
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The Group KD Group Annual Report 2009
Notes to Consolidated Financial Statements as at and for the year ended 31 December 2009
2.8 Financial assets
The Group classifies its financial assets in the following categories: financial assets at fair value through profit or loss; loans
and receivables; held-to-maturity investments; and available-for-sale financial assets. Management determines the
classification of its investments at initial recognition.
2.8.1 Financial assets at fair value through profit or loss
This category has two sub-categories: financial assets held for trading, and those designated at fair value through profit or
loss at inception.
A financial asset is classified as held for trading if it is acquired or incurred principally for the purpose of selling or
repurchasing in the near term or if it is part of a portfolio of identified financial instruments that are managed together and for
which there is evidence of a recent actual pattern of short-term profit-taking.
Financial assets and financial liabilities are designated at fair value through profit or loss when:
- doing so significantly reduces measurement inconsistencies that would arise if the related derivatives were treated
as held for trading and the underlying financial instruments were carried at amortised cost for loans and advances to
customers or banks and debt securities in issue; and
- certain investments, such as equity investments, are managed and evaluated on a fair value basis in accordance
with a documented risk management or investment strategy and reported to key management personnel on that
basis, and are designated at fair value through profit or loss.
2.8.2 Held-to-maturity financial assets
Held-to-maturity investments are non-derivative financial assets with fixed or determinable payments and fixed maturities that
the Group’s management has the positive intention and ability to hold to maturity. If the Group were to sell other than an
insignificant amount of held-to-maturity assets, the entire category would be reclassified as available for sale.
2.8.3 Loans and receivables
Loans and receivables are non-derivative financial assets with fixed or determinable payments that are not quoted on an
active market, other than: (a) those that the entity intends to sell immediately or in the short term, which are classified as held
for trading, and those that the entity upon initial recognition designates as at fair value through profit or loss; (b) those that the
entity upon initial recognition designates as available for sale; or (c) those for which the holder may not recover substantially
all of its initial investment, other than for reason of credit deterioration. If the loan is irrecoverable, it is written-off and
recognised in revaluation expenses - impairment of loans. Loans are considered to be irrecoverable when all the necessary
procedures of recovery have been performed and the amount of loss can be determined. The subsequent repayments of
debts written off reduce the impairment loss recognised in the income statement, providing the repayments are received in the
current year; if not, they increase the revenue.
2.8.4 Available-for-sale financial assets
Available-for-sale investments are those intended to be held for an indefinite period of time, and which may be sold in
response to needs for liquidity or changes in interest rates, exchange rates or equity prices.
2.8.4.1. Recognition of financial assets
Regular purchases and sales of financial assets at fair value through profit or loss, held to maturity and available for sale are
recognised at the trade-date – the date on which the Group commits to purchase or sell the asset.
Financial assets are initially recognised at fair value plus transaction costs for all financial assets not carried at fair value
through profit or loss. Financial assets carried at fair value through profit or loss are initially recognised at fair value, and
transaction costs are expensed in the income statement. Financial assets are derecognised when the rights to receive cash
flows from the financial assets have expired or where the Group has transferred substantially all risks and rewards of
ownership. Financial liabilities are derecognised when they are extinguished − that is, when the obligation is discharged,
cancelled or expires.
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The Group KD Group Annual Report 2009
Notes to Consolidated Financial Statements as at and for the year ended 31 December 2009
2.8.4.2. Measurement of financial assets
Available-for-sale financial assets and financial assets at fair value through profit or loss are subsequently carried at fair value.
Loans and receivables and held-to-maturity investments are carried at amortised cost using the effective interest method.
Gains and losses arising from changes in the fair value of the "financial assets at fair value through profit or loss" category are
included in the income statement in the period in which they arise. Gains and losses arising from changes in the fair value of
available-for-sale financial assets are recognised directly inother comprehensive income, until the financial asset is
derecognised or impaired. At this time, the cumulative gain or loss previously recognised in equity is recognised in profit or
loss. However, interest calculated using the effective interest method and foreign currency gains and losses on monetary
assets classified as available for sale are recognised in the income statement. Dividends on available-for-sale equity
instruments are recognised in the income statement when the entity’s right to receive payment is established.
The fair values of investments listed on active markets are based on current bid prices. If there is no active market for a
financial asset, the Group establishes fair value using valuation techniques. These include the use of recent arm’s length
transactions, discounted cash flow analysis and other valuation techniques commonly used by market participants.
2.9 Impairment of assets
2.9.1 Impairment of financial assets
(a) Financial assets carried at amortised cost
The Group assesses at balance sheet date whether there is objective evidence that a financial asset or group of financial
assets is impaired. A financial asset or a group of financial assets is impaired and impairment losses are incurred if, and only
if, there is objective evidence of impairment as a result of one or more events that occurred after the initial recognition of the
asset (a "loss event") and that a loss event (or events) has an impact on the estimated future cash flows of the financial asset
or group of financial assets that can be reliably estimated. Objective evidence that a financial asset or group of assets is
impaired includes observable data that comes to the attention of the Group about the following loss events:
• significant financial difficulty of the issuer;
• a breach of contract, such as a default or delayed payement of interest or principal amount;
• the Group granting to the borrower, for economic or legal reasons relating to the borrower’s financial difficulty, a
concession that the lender would not otherwise consider;
• it is becoming probable that the borrower will enter bankruptcy or other financial reorganisation;
• the disappearance of an active market for that financial asset because of financial difficulties; or
• observable data indicating that there has been a measurable decrease in the estimated future cash flows from a
group of financial assets since the initial recognition of those assets, although the decrease cannot yet be identified
with the individual financial assets in the Group, including:
- adverse changes in the payment status of borrowers in the Group; or
- national or local economic conditions that correlate with defaults on the assets in the Group.
The Group first assesses whether objective evidence of impairment exists individually for financial assets that are individually
significant. If the Group determines that no objective evidence of impairment exists for an individually assessed financial
asset, whether significant or not, it includes the asset in a group of financial assets with similar credit risk characteristics and
collectively assesses them for impairment. Assets that are individually assessed for impairment and for which an impairment
loss is or continues to be recognised are not included in a collective assessment of impairment.
If there is objective evidence that an impairment loss on loans and receivables or held-to-maturity investments carried at
amortised cost has been incurred, the amount of the loss is measured as the difference between the asset’s carrying amount
and the present value of estimated future cash flows (excluding future credit losses that have not been incurred) discounted at
the financial asset’s original effective interest rate. The carrying amount of the asset is reduced through the use of an
allowance account and the amount of the loss is recognised in the income statement. If a loan or held-to-maturity investment
has a variable interest rate, the discount rate for measuring any impairment loss is the current effective interest rate
determined under the contract. As a practical expedient, the Group may measure impairment on the basis of an instrument’s
fair value using an observable market price. The calculation of the present value of the estimated future cash flows of a
collateralised financial asset reflects the cash flows that may result from foreclosure less costs for obtaining and selling the
collateral, whether or not foreclosure is probable.
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The Group KD Group Annual Report 2009
Notes to Consolidated Financial Statements as at and for the year ended 31 December 2009
For the purposes of a collective evaluation of impairment, financial assets are grouped on the basis of similar credit risk
characteristics (using the valuation model of the Group, which takes into account the type of assets, industry, geographical
location, type of investment, maturity and other relevant characteristics).
Those characteristics are relevant to the estimation of future cash flows for groups of such assets by being indicative of the
debtors’ ability to pay all amounts due according to the contractual terms of the assets being evaluated.
Future cash flows in a group of financial assets that are collectively assessed for impairment are estimated on the basis of the
contractual cash flows of the assets in the Group and historical loss experience, namely on the basis of similar credit risk
exposure in the past. Historical loss experience is restated on the basis of current observable data to reflect the effects of
current conditions that did not affect the period on which the historical loss experience is based and to remove the effects of
conditions in the historical period that do not exist currently.
Estimates of changes in future cash flows for groups of assets should reflect and be directly consistent with changes in
related observable data from period to period (for example, changes in unemployment rates, property prices, payment status,
or other factors indicative of changes in the probability of losses in the group and directly consistent with their magnitude). The
methodology and assumptions used for estimating future cash flows are reviewed regularly by the Group to reduce any
differences between loss estimates and the actual loss .
If, in a subsequent period, the amount of the impairment loss decreases and the decrease can be related objectively to an
event occurring after the impairment was recognised (such as an improvement in the debtor’s credit rating), the previously
recognised impairment loss is reversed by adjusting the allowance account. The amount of the reversal is recognised in the
income statement.
When an asset is uncollectible, it is written off against the allowance account for the asset. Such assets are written off after all
the necessary procedures have been completed and the amount of the loss has been determined. Subsequent recoveries of
amounts previously written off decrease the amount of the impairment charge in the income statement.
(b) Financial assets classified as available for sale
The Group assesses at each balance sheet date whether there is objective evidence that a financial asset or a group of
financial assets is impaired. In the case of equity investments classified as available for sale, a significant or prolonged
decline in the fair value below their cost, a maximum period of 9 months from the date when the fair value of equity
instruments first fell below the purchase price and has remained below the total period of 9 months is taken into account,
while in determination of a significant decrease in the assessment of fair value, the management takes into account at least
40% reduction in the fair value.
If any such evidence exists, the cumulative loss – measured as the difference between the acquisition cost and the current
fair value, less any impairment loss on the financial asset previously recognised in profit or loss – is removed from equity and
recognised in the income statement. If, in a subsequent period, the fair value of a debt instrument classified as available for
sale increases and the increase can be objectively related to an event occurring after the impairment loss was recognised in
profit or loss, the impairment loss is reversed through the income statement.
2.9.2 Impairment of non-financial assets
Intangible assets which are not subject to amortisation are tested annually for impairment. Assets that are subject to
amortisation are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount
may not be recoverable. An impairment loss is recognised for the amount by which the asset’s carrying amount exceeds its
recoverable amount. The recoverable amount is determined for an individual asset, unless the asset does not generate cash
inflows that are largely independent of those from other assets or groups of assets. In such case, the recoverable amount is
established for a cash-generating unit i.e. the smallest identifiable group of assets that generates cash inflows that are largely
independent of the cash inflows from other assets or groups of assets. The criterion for determining the cash-generating units
is the individual business area of the Group. The recoverable amount of an asset or a cash-generating unit is the higher of its
fair value less costs to sell and its value in use.
2.10 Inventories
Inventories are stated at the lower of cost and net realisable value. Cost is determined using the weighted average cost
method. Net realisable value is the estimated selling price in the ordinary course of business, less applicable variable selling
expenses.
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The Group KD Group Annual Report 2009
Notes to Consolidated Financial Statements as at and for the year ended 31 December 2009
2.11 Offsetting financial instruments
Financial assets and liabilities are offset and the net amount reported in the balance sheet only when there is a legally
enforceable right to offset the recognised amounts and there is an intention to settle on a net basis, or to realise the asset and
settle the liability simultaneously.
2.12 Cash and cash equivalents
Cash and cash equivalents include cash in hand and demand deposits held with banks. The Group reports cash flows from
operating activities using the indirect method, whereby profit or loss is restated for the effects of transactions of a non-cash
nature, any deferrals or accruals of past or future operating cash receipts or payments, and items of income or expense
associated with investing or financing cash flows.
2.13 Share capital and dividend distribution
Ordinary and preference shares are equity. Incremental costs directly attributable to the issue of new shares or options or to
the acquisition of a business are shown in equity as a deduction, net of tax, from the proceeds.
Where the Company or another member of the Group purchases the Company's equity share capital, the consideration paid
is deducted from total shareholders’ equity. Where such shares are subsequently sold or reissued, any consideration received
is included in the shareholders’ equity.
Dividends on ordinary and preference shares are recognised as a liability in the period in which they are approved by the
Company's shareholders. Dividends for the year that are declared after the balance sheet date and before the financial
statements are authorised for issue are disclosed in the subsequent events note (see Note 30).
2.14 Insurance and investment contracts
The Group issues contracts that transfer insurance risk or financial risk, or both. Insurance contracts are those contracts that
transfer significant insurance risk. Such contracts may also transfer financial risk. As a general guideline, the Group defines
as significant insurance risk the possibility of having to pay benefits on the occurrence of an insured event that are at least
10% above the benefits payable if the insured event did not occur.
Investment contracts are those contracts that transfer financial risk with no significant insurance risk.
Traditional life insurance contracts and investment contracts include the possibility of discretionary participation in the positive
result realised through management of assets from said contracts (hereinafter: DPF). The possibility of discretionary
participation is a contractual right to additional benefits supplementary to guaranteed benefits, namely:
- benefits which are likely to represent a significant share of the total contract benefits;
- benefits whose amount or time frame is specified by the insurer; and
- benefits which are contractually based on:
• the success of a given category of contracts or certain types of contracts;
• realised and/or unrealised investment returns on a specific pool of assets held by the issuer; or
• the profit of the company, cover of assurance or other entity that issues the contract.
Traditional life insurance contracts with DPF and investment contracts with DPF contain an agreed insurance sum or annuity
(calculated under the premise of achieving a certain rate of return on accumulated assets) and an additional possibility of the
insured’s participation in the Group’s realised profits in the segments of life insurance and annuity insurance at the end of the
financial period and/or with regard to the profitability of assets if higher than the pre-calculated amounts. The basis for
determining the amounts of discretionary participation of the insured and the percentage vary between individual insurance
products and are defined in the insurance terms.
Insurance and financial life insurance contracts are defined as contracts with DPF because the interest rate used at the time
of preparing the product and calculating the agreed insurance sum or annuity was lower than the expectations at the time with
regard to commercial interest rates. Additional benefits for the policyholder were expected at the stage of preparing the
insurance product, which represents a discretionary right to additional benefits.
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The Group KD Group Annual Report 2009
Notes to Consolidated Financial Statements as at and for the year ended 31 December 2009
2.14.1 Insurance contracts
2.14.1.1 Recognition and measurement
The Group offers four main categories of insurance contracts, depending on the duration of risk and whether or not the terms
and conditions are fixed:
• Property insurance contracts
• Health insurance contracts
• Life insurance contracts with DPF
• Unit-linked life insurance contracts
2.14.1.2 Property insurance contracts
This category includes accident insurance, insurance of land vehicles, fire and other damage insurance, liability insurance,
financial loss insurance, transport insurance, credit and suretyship insurance, and insurance of assistance and costs of
procedures. This mainly involves short-term insurance contracts, with the exception of credit insurance.
In accident insurance, in addition to the basic insured risks such as disability and death, policyholders mainly opt for additional
insurance coverage such as daily accident insurance, daily insurance in the event of hospital treatment due to an accident,
and daily insurance in the event of prolonged treatment in a medical facility due to an accident. In addition to the
aforementioned risks, an insurance policy may also be taken out for the event of death in a traffic accident, reimbursement of
medical expenses, funeral costs in the event of the insured’s death, and reimbursement of accommodation costs for adult
supervisors in the case of insuring schoolchildren.
Land motor vehicle insurance covers material damage (partial or total loss of the vehicle’s value) which might result from
traffic accidents, natural disasters, theft, fire, malicious acts and other insured risks.
Car insurance falls under the category of mandatory traffic insurance and must be ensured by every owner of a motor vehicle
prior to beginning to use the vehicle in traffic. This applies to all types of motor vehicles which require registration. The Group
reimburses the injured party for damages incurred as a result of the use or possession of the vehicle causing the damage.
The insurance also provides coverage of property (destruction, accidental damage) as well as non-property damage (bodily
injury, health conditions or death), providing the insured with total property security. The amount of indemnification is limited in
both cases by the legally defined minimum insurance sum.
Fire insurance covers real and moveable property from the risk of fire, lightning, explosion, hailstorm, windstorm, crash of the
insured’s motor vehicle and work machinery, airplane crash and public manifestations and demonstrations. By special
agreement and subject to an additional premium, it is also possible to include insurance coverage in the event of flooding,
water spill, landslide, avalanche, spill of fluids or gases, self-combustion of inventories and spill of glowing mass in industrial
environments. Additionally, insurance coverage can extend to earthquake and torrential flooding. Insurance can be taken out
on new or actual value.
In the context of the insurance category "Other indemnity insurance", the following subcategories are of significance
according to the amount of the premium: home insurance for insuring domestic non-fixed assets, machinery malfunction to
insure machinery and its parts, burglary insurance to insure moveable property from burglary and theft, building insurance,
insurance of computers and glass.
General liability insurance covers damages from indemnification claims enforced by third parties against the insured due to a
sudden event which resulted in damage to persons or things. The key element of this insurance category is insurance of
general liability, including employer liability. Other important subcategories include: forwarding, manufacturer, project
engineering, medical and accounting liability. To a smaller degree, other forms of professional liability insurance are traded:
professional liability of attorneys, insurance agents, real estate agents, surveyors, members of management boards and
supervisory boards, liability of auditing firms and other legally prescribed professional liability insurance types.
The category of financial loss insurance includes insurance for the event of halting the working process due to fire or machine
breakage, and insurance of public events. The former are taken as additional insurances against fire and machine breakage
insurance, and events are insured independently. Insurance of halted production processes involves insurance of fixed costs
which the insured was unable to cover due to the fire or machine breakage. By special agreement, insurance may also
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include profits which the policyholder was unable to realise during the halt in production. Insurance of events covers damages
incurred by the organiser in the event of cancellation of an event due to weather, and by special agreement also if the
cancellation occurs as a result of natural or administrative force majeure, or due to fire or explosion.
Transport insurance includes coverage of goods in domestic and international transport, comprehensive insurance of boats
and airplanes, liability insurance of the owner or authorised user of the boat or airplane, insurance of the transporter’s liability
in road traffic, insurance of the forwarding agent’s liability and insurance of maritime agents. The quote is also customised to
fit the needs of the policyholder in the field of liability insurance, or in case of damage to goods under the FIATA bill of lading,
and we also design and provide more specific insurance policies such as liability coverage for repairers of boats, marina and
harbour managers, and insurance of risk borne by constructors of boats and shipyards.
Credit insurance marketed by the Group covers failure to pay contractual obligations for whatever reason and comprises
insurance of commercial loans, insurance of loans for investment in real property, bank overdraft limits, etc. In the segment of
suretyship insurance, the policyholder is provided with a guarantee for earnest deposits, good performance of works, repair of
malfunctions during the warranty period, payment of customs duties, for the event of insolvency of tourist organisations, for
ensuring the payment of goods and services acquired through use of a credit card, guarantees for TIR carnets, etc.
Insurance of assistance costs provides the policyholder with emergency assistance either in relation to vehicles in the event of
malfunction or traffic accident, or in relation to an apartment or house when normal residence is impossible due to the sudden
emergence of events, or when emergency assistance is needed when travelling abroad. In insuring the costs of procedures,
the most important feature is the insurance of legal aid, which provides the policyholder with coverage of attorney fees.
In all of the above contracts, premiums accrue when they become payable by the policyholder. Premiums contain all costs in
addition to premiums, including the agency fee, except taxes. The part of the premiums from valid insurance contracts which
refers to unexpired insurance coverage on the balance sheet date is presented as unearned premium reserve and represents
a liability of the Group. Accrued premiums less changes in unearned premium reserves are recognised as revenue.
The amounts of damage and appraisal costs are recognised as liabilities at the time the claim was incurred. Claims incurred
but not fully resolved as at the balance sheet date are recognised as provisions for claims. Liabilities for claims incurred and
reported as at the balance sheet date are formed on the basis of individual appraisal of claims. Liabilities for claims incurred
but not reported as at the balance sheet date are assessed through statistical analysis. Liabilities for claims are further
increased by the estimated costs of resolving such claims. Accrued indemnifications/insurance amounts, including costs of
appraisal and resolution of cliams, increased by the difference of provisions for claims, are recognised as an expense.
2.14.1.3 Health insurance contracts
The Group offers three of the four types of optional health insurance as set forth by the Health Care and Health Insurance Act
(ZZVZZ), namely supplementary health insurance, extra health insurance and parallel health insurance.
Supplementary health insurance covers the difference between the health care costs under Art. 23 of ZZVZZ and the share of
these costs which is covered under mandatory health insurance or part of this difference where the extra payable amount
relates to the right to medical products included on the list of interchangeable medical products, medical aids and technical
accessories.
Extra health insurance covers the costs of health services and related services and supply of medical products and medical
aids and technical accessories, and the costs involved in cash payouts which are not part of mandatory health insurance and
are not covered under supplementary or substitute health insurance.
Parallel health insurance covers the costs of health services and related services, and supply of medical products and
medical aids and technical accessories which, although they constitute entitlement under mandatory health insurance, are
pursued by the insured under alternative procedures and under different conditions than those regulated under mandatory
health insurance.
The Group concludes long-term insurance contracts on the basis of monthly or annual premiums.
In addition to the above, the Group also offers travel insurance abroad with assistance from CORIS, which covers the costs of
medical treatment and emergency transport. These insurance policies are short term in nature.
The premium is recognised as revenue when the policyholder’s obligation to pay falls due. Premiums contain all costs in
addition to premiums, including the agency fee, except taxes. The part of the premiums from valid insurance contracts which
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refers to unexpired insurance coverage on the balance sheet date is presented as unearned premium reserve. Accrued
premiums less changes in unearned premium reserves are recognised as revenue.
The amounts of claims and appraisal costs are recognised as an appraised liability at the time the claim was incurred. Claims
incurred but not fully resolved as at the balance sheet date are recognised as provisions for claims. Provisions for claims
incurred and reported as at the balance sheet date are formed on the basis of individual appraisal of claims. Provisions for
claims incurred but not reported as at the balance sheet date are assessed through statistical analysis. Provisions for claims
are further increased by the estimated costs of resolving such claims. Accrued indemnifications/insurance amounts, including
costs of appraisal and resolution of claims, increased by the difference of provisions for claims, are recognised as an
expense.
Insurance companies offering supplementary health insurance are included in compensatory schemes under ZZVZZ, which
offset the differences in the medical costs between different structures of insured with individual insurance companies with
regard to gender and age. As a compensatory scheme payer, the Group recognises these expenses as damage expenses.
2.14.1.4 Long-term insurance contracts with included guarantees and DPF
These contracts include contracts insuring events related to the insured’s life (e.g. death, maturity) over a longer period of
time. The premium is recognised as revenue when the policyholder’s obligation to pay falls due. Premiums are disclosed
before deduction of expenses.
Liabilities stemming from the insurance contract are recorded as expenses as they are incurred.
Liabilities for anticipated future contract entitlements are recorded at the recognition of premiums. For long-term life insurance
contracts with included guarantees, the liabilities on the valuation date are formed in the amount of current values of the
Group’s anticipated future liabilities less the current estimate of future premiums to be paid in on the basis of concluded
insurance policies (prospective method). The Group uses reduction in insurance liabilities in terms of the Zillmer method. The
Zillmer method is an actuarial method used in traditional life insurance business for deferral of acquisition costs (reduction in
mathematical provisions). The Zillmer amount for an individual contract does not exceed 3.5% of the insured sum. Negative
mathematical provisions are set to 0.
The assumptions used in the assessment of iabilities also take into account the risk adjustment.
Liabilities also include liabilities connected with the distribution of a surplus to holders of life insurance policies. In accordance
with the insurance terms, only a valid contract of mixed insurance and insurance in annuities which has been in place for at
least 24 months at the end of the financial period is included in the distribution of a surplus.
The surplus in endowment life insurances is added at the end of each year as an additional premium, and consequently the
sum insured is increased. An additional insured sum is paid out in the event of death or maturity. For annuity insurance, the
addition of the surplus during the time of postponement of pension increases the agreed sum of the annuity. The surplus can
be distributed due to higher yield of investments, under-mortality (over-mortality for annuities) or lower expenses than
anticipated and provided for.
In accordance with insurance terms, the distribution of profits attributable to life insurance is within the discretion of the
management, which passes a resolution each year setting the amount of participation in the surplus. This amount is not
specified in the internal regulations.
In the case of insurance contracts with a single payment of the premium, or when the period of premium payments is shorter
than the period during which the entitlements from the insurance contract are created, the surplus of premiums which have
fallen due is deferred and recognised as revenue as and when entitlements from the insurance contract fall due, i.e. in
accordance with anticipated future entitlements. Deferred revenue on the balance sheet date is recognised as a liability. For
life insurance (with the exception of extra accident insurance policies), this part is recognised under liabilities from insurance
contracts. For extra accident insurance policies, this part is disclosed as a liability for the unearned premium. The liability is
formed using the pro-rata method for all insurance contracts which do not involve monthly payments and is calculated for
each insurance contract individually.
In the context of the remaining obligations under insurance contracts, the Group recognised liabilities for unexpired risks for
insurance products of supplementary accident insurance, for which a sufficient amount of the premium was charged to cover
the risk and cost.
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As the Group has no reinsurance to partially cover its liabilities from such contracts, the reinsurance part of liabilities is zero
as at 31 December 2009.
Liabilities are calculated on the balance sheet date on the basis of the assumptions applicable at the time of concluding such
contracts, or in certain cases on the assumptions which the Group adopted during the insurance term. The assumptions
additionally take into account an adjustment for unanticipated deviations.
Liabilities from claims incurred and reported and from claims incurred but not reported represent estimated amounts for:
• claims settled, but not paid out as of the balance sheet date;
• incurred but not reported claims as of the balance sheet date (IBNR);
• incurred but not fully reported claims as of the balance sheet date (IBNFR);
• estimated expenses related to claims handling.
Liabilities for reported but not yet resolved claims are recognised based on the estimated amount and are regularly reviewed.
Accident insurance liabilities related to incurred but not reported claims are determined for accident insurance based on the
statistical method, and for other life insurances based on the trend method.
The liabilities also include expenses related to claims handling in the lump sum amount of 2.5% of total liabilities. Claims
liabilities are not discounted. In accordance with the reinsurance contract, the Group discloses the reinsurance part of its
liabilities attributable to claims as reinsurance assets.
2.14.1.5 Long-term unit-linked insurance contracts
Unit-linked insurance contracts cover insurance events referring to the life of the policyholder (in the event of death and
maturity) for a longer term. A unit-linked insurance contract is a contract where the contractual payments are invested in units
of an internal or external investment fund selected by the policyholder. In accordance with accounting standards, the financial
and insurance parts of the contract do not need to be separated, and their accounting does not need to be conducted
separately. Liabilities arising from those contracts are recognised at fair value to income.
The premium is recognised as revenue when the policyholder’s obligation to pay falls due. The Group discloses its liabilities to
its policyholders under liabilities related to unit-linked insurance contracts, in accordance with the relevant individual insurance
contract and product.
Liabilities are increased by premiums and decreased by costs. Furthermore, the amount of liabilities takes into account
changes in the value of fund unit prices and is reduced by the management fees and risk premium. In the event of
redemption, the liabilities are reduced and the redemption value equals the Group’s liabilities less exit fees charged in the
event of redemption or upon termination of insurance.
It is assumed that the risk premiums charged in an individual time period for the expected population mortality are adequate to
cover the insurance claims from entitlements in the event of death which exceed the value of units on individual personal
accounts of the policyholders. Additional liabilities in regard of such claims are therefore not disclosed. The risk premium for
an individual insurance contract is calculated on a monthly basis according to the asset value.
For an individual long-term unit-linked life insurance contract, the balance of liabilities as at the balance sheet date equals the
sum of the value of units on the balance sheet date, not evaluated net premiums paid, the revised claims and additional
liability. The balance also includes the revised claims, as the financial statements are prepared on the basis of the invoiced
premium.
The Group defers costs with regards to those relating to paid commission - that is, when the dynamics of the
payment of fees is different from the dynamics of calculated acquisition costs. Commission costs are deferred only with
regards to life insurance for which the Zillmer method is not applied in the calculation of liabilities. Nor is the Zillmer method
applied where the dynamics of the payment of fees is consistent with the dynamics of accrued acquisition costs.
2.14.1.6 Deferred policy acquisition costs (DAC)
Commissions and other acquisition costs for unit-linked insurance contracts that vary with and are related to securing new
contracts and renewing existing contracts are deferred and charged to the income statement in proportion to and over the
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period when premium allocations to the unit-linked insurance liability are reduced for upfront charges. For property insurance
contracts a proportional share of acquisition costs is deducted from the unearned premium reserves. For life insurance
contracts with DPF and investment contracts with DPF, acquisition costs are deducted from mathematical provisions.
.
2.14.1.7 Liability adequacy test
On each balance sheet date, contract liability adequacy tests are carried out. The Group assesses at each reporting date
whether its recognised insurance liabilities are adequate, using current estimates of future cash flows under its insurance
contracts, appraisal costs and administration costs, as well as financial income from the investments to cover these liabilities.
If this estimate shows that the carrying amount of insurance liabilities is not appropriate in terms of estimated future cash
flows, the entire amount of the deficit is recognised in the profit or loss.
The liability adequacy test is done on the basis of recognised gross liabilities. The relevant insurance assets are considered
separately. In carrying out the liability adequacy test, the insurance considers only liabilities which stem from contracts listed
under the insurance contract category according to the standard. These liabilities include liabilities for unearned premiums,
liabilities from insurance contracts, deferred agency fee costs, claims liabilities and other liabilities.
If the liability adequacy test indicates inadequate liabilities, the calculation of liabilities from such insurance contracts in future
periods is done on the basis of the assumption of the test which showed inadequate disclosure of liabilities.
2.14.1.8 Reinsurance contracts
Contracts entered into by the Group with reinsurers under which the Group is compensated for losses on one or more
contracts issued by the Group and that meet the classification requirements for insurance contracts are classified as
reinsurance contracts held.
The benefits to which the Group is entitled under its reinsurance contracts held are recognised as reinsurance assets. These
assets consist of short-term balances due from reinsurers, as well as long-term receivables that are dependent on the
expected claims and benefits arising under the related reinsured insurance contracts. Amounts recoverable from or due to
reinsurers are measured consistently with the amounts associated with the reinsured insurance contracts and in accordance
with the terms of each reinsurance contract. Reinsurance liabilities are primarily premiums payable for reinsurance contracts
and are recognised as an expense when due.
The Group assesses its reinsurance assets for impairment on a regular basis. If there is objective evidence that the
reinsurance asset is impaired, the Group reduces the carrying amount of the reinsurance asset to its recoverable amount and
recognises the impairment loss in the income statement.
2.14.1.9 Receivables and payables related to insurance contracts
Receivables and payables are recognised when due. These include amounts due to and from agents, brokers and insurance
contract holders. If there is objective evidence that the insurance receivable is impaired, the Group reduces the carrying
amount of the insurance receivable accordingly and recognises that impairment loss in the income statement.
2.14.1.10 Salvage and subrogation reimbursements
Some insurance contracts permit the Group to sell (usually damaged) property acquired in settling a claim (i.e. salvage). The
Group may also have the right to pursue third parties for payment of some or all costs (i.e. subrogation).
Estimates of salvage recoveries are included as an allowance in the measurement of the insurance liability for claims, and
salvage property is recognised in other assets when the liability is settled. The allowance is the amount that can reasonably
be recovered from the disposal of the property.
Subrogation reimbursements are also considered as an allowance in the measurement of the insurance liability for claims and
are recognised in other assets when the liability is settled. The allowance is the assessment of the amount that can be
recovered from action against the liable third party.
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2.14.2 Investment contracts
Investment contracts are contracts which involve financial risk without significant insurance risk.
All of the Group’s investment contracts include the option of discretionary participation, giving policyholders the right to
participate in the generated surplus over the guaranteed returns through management of assets which relate to such
investment contracts. The attribution of the generated surplus is the discretionary right of the management.
In this category the Group includes voluntary supplementary pension insurance under the PN-A01 pension plan, and annuity
contracts with specific periods of pay-ins and payouts with a fixed (technical) interest rate.
Voluntary supplementary pension insurance is based on the Pension and Disability Insurance Act. It provides extra pension
savings and ensures receiving pension benefits until death. The pension basis is a collective pension plan which a company
subscribing to the collective insurance contract, wishing to take care of its employees, may join with a minimum of 51% of all
employees. Through this type of insurance, employees of the company subscribing to the insurance contract invest in assets
held in special personal pension accounts. The paid-in assets accrue interest with a guaranteed return which is at least 60%
of the interest rate on long-term government securities with a maturity of more than one year. Based on accumulated assets,
an additional pension will be calculated when the insured retires. Each policy is entitled to the distribution of a surplus from
higher returns than the guaranteed return, which is generated through the long-term business fund. The profit generated is
distributed among the insured in the form of regular and final bonuses, as per the insurance conditions. The amount of the
regular bonus is set each year by the management depending on the market value of assets held in the long-term business
fund.
Limited-time annuity insurance is a new form of savings which represents a source of income for a specific period, and the
insured chooses the term of savings and the term of annuity payouts. The Group guarantees the payout of agreed annuities,
which can be increased during the term of the contract at the expense of the insured’s participation in the profits realised
within the insurance category.
Premiums attributable to investment contracts with DPF are recognised in the same way as with life insurance contracts with
DPF.
At the end of the business year, the Group determines the DPF distribution based on the realised result/returns on the pool of
assets relating to the investment contracts (DPF portion). This amount is added to the liabilities from investment contracts with
DPF, and no unallocated DPF portion remains as of the end of the year.
Obligations and revenue from financial contracts are calculated and recognised in the accounts in the same way as with the
mixed life insurance component of the DPF.
Where the resulting liability is lower than the sum of the amortised cost of the guaranteed element of the contract and the
intrinsic value of the surrender option embedded in the contract, it is restated and any shortfall is recognised immediately in
the income statement.
Unearned premium and claim reserves are calculated in the same manner as in the case of life insurance contracts with DPF.
Mathematical reserves for annuities contracts for a limited time are calculated based on the prospective net Zillmer method.
Its value is calculated as the current value of future payments of agreed annuities, including payment commissions, restated
for the current value of future technical premiums that will be paid based on those annuity contracts.
Mathemtical reserves from long-term pension insurance contracts are computed as the mathematical product of the value per
unit of the long-term business fund and the number of units held on the reporting date. The calculation is made for each
policy. This covers the liability to the policyholder. In addition, the Group forms an additional liability for surplus returns over
the guaranteed returns (for attribution of regular and final bonuses).
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2.15 Borrowings
Borrowings are recognised initially at fair value, net of transaction costs incurred. Borrowings are subsequently stated at
amortised cost; any difference between the amount at initial recognition and the redemption value is recognised in the income
statement over the period of the borrowings using the effective interest method.
Borrowings are classified as current liabilities unless the Group has an unconditional right to defer settlement of the liability for
at least 12 months after the balance sheet date.
If the Group purchases its own debt, it is removed from the balance sheet and the difference between the carrying amount of
the liability and the consideration paid is included in investment income.
2.16 Derivative financial instruments and accounting point of hedging
Derivative financial instruments including futures and forwards, swaps and options are initially recognised at fair value on the
balance sheet date. Fair values are obtained from quoted market prices on active markets, including recent market
transactions, and valuation techniques, including discounted cash flow models and options pricing models, as appropriate. All
derivatives are carried as assets when fair value is positive and as liabilities when fair value is negative.
The method of recognising the resulting fair value gain or loss depends on whether the derivative is designated as a hedging
instrument, and if so, the nature of the item being hedged. The Group uses derivative financial instruments for hedging future
cash flows which are attributable to assets, liabilities and future business.
From an accounting point of view, hedging is used only under specific conditions.
The Group documents at the inception of the transaction the relationship between hedging instruments and hedged items, as
well as its risk management objective and strategy for undertaking various hedging transactions. The Group also documents
its assessment, both at hedge inception and on an ongoing basis, of whether the derivatives that are used in hedging
transactions are expected to be and have been highly effective in offsetting changes in fair values or cash flows of hedged
items. The Group assesses the success of hedging at the time of transaction and for the duration of hedging.
Cash flow hedges
The effective portion of changes in the fair value of derivatives that are designated and qualify as cash flow hedges is
recognised in other comprehensive income. The gain or loss relating to any ineffective portion is recognised immediately in
the income statement within net fair value gains on financial assets at fair value through profit or loss.
Amounts recognised directly in other comprehensive income are recycled into the income statement in the periods in which
the hedged item affects profit or loss.
When a hedging instrument expires or is sold, or when a hedge no longer meets the criteria for hedge accounting, any
cumulative gain or loss existing in equity at that time remains in other comprehensive income and is recognised when the
forecast transaction is ultimately recognised in the income statement. However, when a forecast transaction is no longer
expected to occur, the cumulative gain or loss that was reported in other comprehensive income is immediately transferred to
the income statement.
2.17 Trade payables
Trade payables are recognised initially at fair value and subsequently measured at amortised cost using the effective interest
rate method.
2.18 Income tax
2.18.1 Current tax
The Group charges taxes in accordance with the provisions of the legislation applicable in individual countries in which the
Group’s subsidiaries are located. In Slovenia, the corporate income tax rate for the year 2009 is 21%. In the year 2010 the tax
rate will be 20%.
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2.18.2 Deferred tax
Deferred tax is provided in full, using the balance sheet liability method, on temporary differences arising between the tax
bases of assets and liabilities and their carrying amounts in the consolidated financial statements. In accordance with the initial
recognition exemption, deferred taxes are not recorded for temporary differences on initial recognition of an asset or a liability in
a transaction other than a business combination if the transaction, when initially recorded, affects neither accounting nor taxable
profit. Deferred income tax is determined using tax rates (and laws) that have been enacted or substantively enacted by the
balance sheet date and are expected to apply when the related deferred tax asset is realised or the deferred tax liability is
settled.
Deferred tax assets are the amounts of taxable profits, which will be available in future periods for deductible temporary
differences, unused tax losses and unused tax credits carried forward to the next period. Deferred tax liabilities are the
amounts of tax to be paid in future periods depending on the taxable temporary differences. Deferred tax liabilities are
recognised in full. Deferred tax assets and liabilities are not discounted and are offset if they relate to tax expense in the same
tax authority and the companies of the Group have legally enforceable right to offset the assessed tax assets and tax
liabilities.
Deferred tax assets are recognised to the extent that it is probable that future taxable profit will be available against which the
temporary differences can be utilised.
The effects of recognising deferred tax assets and liabilities are recognised as income or expense in the Group’s income
statement unless the tax arises from a transaction that has been recognised directly other comprehensive incomeor a
business combination.
Deferred tax is provided on temporary differences arising from investments in subsidiaries and associates, except where the
Group controls the timing of the reversal of the temporary difference and it is probable that the temporary difference will not be
reversd in the foreseeable future.
2.19 Provisions for jubilees and post-employment benefits
The Group provides benefits to employees as a legal obligation – jubilees and retirement benefit bonuses. According to
Slovenian legislation, employees retire after 40 years of working life, at which time, if fulfilling certain conditions, they are
entitled to benefits paid in a lump sum t. Employees are also entitled to jubilees for every 10 years of employment with the
Group.
The Group recognises all actuarial gains and losses immediately in the income statement.
The future liabilities are calculated by an independent certified actuary. Key assumptions included in the calculation of
provisions for jubilees and post-employment benefits are:
- discount rate of 4.5%,
- expected wage growth in the company and the expected wage growth due to promotions – 4.5%,
- the estimated fluctuation rate according to historical data – the average rate of 4%.
2.20 Revenue recognition
Revenue comprises the fair value of the consideration received or receivable for the sale of goods and services, in the
ordinary course of the Group’s activities. Revenue is shown net of value-added tax, returns, rebates and discounts and after
elimination of sales within the Group. The Group recognises revenue when the amount of revenue can be reliably measured,
it is probable that future economic benefits will flow to the entity and specific criteria have been met for each of the Group’s
activities as described below. The amount of revenue is not considered to be reliably measurable until all contingencies
relating to the sale have been resolved. The Group bases its estimates on historical results, taking into consideration the type
of customer, the type of transaction and the specifics of each arrangement.
Revenues are recognised as follows:
(a) Sales of goods
Sales of goods are recognised when a Group entity has delivered products to the customer and the customer has accepted
the products. Revenue is recognised when it is probable that the economic benefits associated with the transaction will flow to
the Group entity and the Group entity has transferred to the buyer the significant risks and rewards of ownership of the goods.
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(b) Sales of services
Sales of services are recognised in the accounting period in which the services are rendered, by reference to completion of
the specific transaction assessed on the basis of the actual service provided as a proportion of the total services to be
provided.
(c) Interest income and expenses
Interest income and expense for all interest-bearing financial instruments, except for those classified as held for trading or
designated at fair value through profit or loss, are recognised within interest income and interest expense in the income
statement using the effective interest method.
The effective interest method is a method of calculating the amortised cost of a financial asset or a financial liability and of
allocating the interest income or interest expense over the relevant period. The effective interest rate is the rate that exactly
discounts estimated future cash payments or receipts over the expected life of the financial instrument or, when appropriate, a
shorter period to the net carrying amount of the financial asset or financial liability. When calculating the effective interest rate,
the Group estimates cash flows considering all contractual terms of the financial instrument (for example, prepayment
options) but does not consider future credit losses. The calculation includes all fees and points paid or received between
parties to the contract that are an integral part of the effective interest rate, transaction costs and all other premiums or
discounts.
Once a financial asset or a group of similar financial assets has been written down as a result of an impairment loss, interest
income is recognised using the rate of interest used to discount the future cash flows for the purpose of measuring the
impairment loss.
(d) Dividend income
Dividend income is recognised when the right to receive payment is established.
(e) Premium income
Income from insurance premiums includes net income from insurance premiums, calculated on the basis of gross written
premiums accrued in the accounting period, less the share of gross written premiums ceded to the reinsurer and restated for
changes in net unearned premium reserves.
Income from insurance contracts is recognised as premium income in the following way:
- Income arising from a single premium is recognised when the insurance policy is incepted and bills charged;
- Income arising from long-term insurance contracts in which the premium is paid in instalments (monthly, quarterly,
annually) is recognised upon the recognition of premium receivables.
The premium charged by the Group covers transaction costs (the fees of concluding the contract, management and
collection) and represents income in the period of settlement. If a period of more than one year is concerned, a portion of the
premium is deferred as a liability and transferred to income over the life of the contract.
3. Significant accounting judgements, estimates and assumptions
3.1 Significant accounting judgements, estimates and assumptions in applying accounting policies
The Group makes estimates and assumptions that affect the reported amounts of assets and liabilities within the next
financial year. Estimates and assumptions are continually evaluated and based on historical experience and other factors,
including expectations of future events that are believed to be reasonable under the circumstances.
3.1.1 Estimated impairment of goodwill
The Group annually tests goodwill for potential impairment in accordance with the accounting policy stated in Note 2.7. The
recoverable amounts of cash-generating units have been determined based on value-in-use calculations. These calculations
require the use of estimates.
3.1.2 Ultimate liability arising from claims made under insurance contracts
The estimation of the ultimate liability arising from claims made under insurance contracts is the Group’s most critical
accounting estimate. There are several sources of uncertainty that need to be considered in the estimate of the liability that
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the Group will ultimately pay for such claims. At each balance sheet date, liability adequacy tests are performed to ensure the
adequacy of liabilities. In performing these tests, current best estimates of future contractual cash flows and claims handling
and administration expenses, as well as investment income from the assets backing such liabilities, are used. Any deficiency
is charged to profit or loss by establishing a provision for losses arising from liability adequacy tests.
The Group performs the adequacy test of the obligations from insurance contracts on the balance sheet day.Through this test
the Group revisits the adequacy of the insurance liabilities recognised. The test of provisions considers all the liabilities arising
form insurance contracts and deferred acquisition costs. In the test the current estimates of the future cash flows form
insurance contracts are applied.
If the liability adequacy test shows deficit of the provisions recognised, the deficit is recognised as and increase of provision
through the income statement.
The liability adequacy test is performed separately for life and non-life insurances.
Liability adequacy test for life insurance
The test is carried out for each contract which was valid on the balance sheet date, and the outcome is summarised and
presented by insurance contract category.
Expected cash flows are generated for:
• premiums (life insurance contracts and extra accident insurance);
• payout of damages (death, maturity, annuities, redemptions, accident loss);
• costs (remaining commission fees, administrative fees, costs of claims);
• revenue from investments.
For individual future cash flows, the following items are taken into consideration:
• provisions of individual insurance policies (amount of the premium, premium payment dynamics, amount of the
insured sum in the event of death and maturity, amount of annuities);
• technical bases of the relevant products (mortality tables, interest rate, initial fee costs, other administrative costs);
• assumptions (the realised mortality rates for life insurance policies, mortality in annuity insurances, rates of
redemption, future profitability, level of realised administrative costs, future inflation, damage outcome from accident
insurance policies, profitability, etc.). Assumptions are individually explained.
The cash flows for individual years (development up to 80 years) are discounted on the balance sheet date.
Economic and operative assumptions
1. Risk discount rate
To calculate the present value of expected cash flows, the discount rate, shown by the curve of AAA-rated euro area central
government bonds as at 4 January 2010 are taken into account.
2. The rate of return on investments
While peforming the LAT test for life and annuity insurance, the return on investment ranging from 4 to 5% for the first ten
years and 5% for subsequent years was taken into account. The same dynamics of the return on investments, increased by
1% was considered for insurance products with investment risk.
3. Inflation
The expected inflation rates (2%) are considered in the estimate of expected costs.
4. Costs
Costs of operations (administration, costs of payout of damages, etc.) are calculated on the basis of estimates contained in
the technical bases of the product, multiplied by a factor which represents the estimate of expected realised costs compared
to those calculated into the products, under the assumption that one half of the costs is not subject to inflation. Other costs are
increased at the inflation rates.
5. Mortality
35% mortality tables werer considered for life insurance which was used as technical base of product (based on the Group´s
10 years of experience). Based on this assumption, a small number of deaths and a small amount of payments in case of
death is assumed compared with mortality based on technical grounds.
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The Group KD Group Annual Report 2009
Notes to Consolidated Financial Statements as at and for the year ended 31 December 2009
For annuities contracts, the Group used Austrian annuity tables from 1996 (this is a cautious estimation, which provides a
lower mortality and longer life expectancy, which is also observed in the Slovenian population).
6. Redemption rates
Based on an analysis of redemptions of life insurance policies and investment risk insurance policies, the following rates of
redemption are used:
Year after Rate of buy-out
Unit-
agreement Life insurance linked
0 17.00% 10.00%
1 6.00% 5.00%
≥2 3.00% 3.00%
7. Claims from extra accident insurance contracts
Based on historical data, the future claims from additional accident insurance is estimated at 40% of the additional accident
insurance premium.
Result of the adequacy test for 2008
The LAT test has shown that the provisions formed as at 31 December 2008 are adequate for all long-term business funds.
The liabilities calculated under the LAT test based on the best estimate as at 31 December 2008 are lower than the liabilities
calculated by the Company using the aforementioned methodology and recognised in its financial statements.
Life insurance
With regard to life insurance with guarantee and DPF, liabilities do not increase enough at any upper sensitivity to lead to
overstated liabilities as at 31 December 2009.
For unit-linked life insurance, the adequacy test has shown that future liabilities will be covered from overstated liabilities and
future costs and premiums. This means that supplementary liabilities beside overstated liabilities are not disclosed. The same
applies to all sensitivity tests which were carried out.
Property and health insurance
The Group has tested the adequacy of the provisioning for unearned premiums for property and health insurance contracts.
The provisions for losses and provisions for bonuses, discounts and cancellations are calculated on the basis of the estimates
made at the time of the calculation; hence it is deemed that the provisions formed for these liabilities have been made in the
adequate amount.
The liability adequacy test is therefore limited to the unexpired portion of active (in-force) contracts. It is performed by
examining the difference between the expected amount of claims for losses and the expenses attributable to the unexpired
portion of policies still in force at the balance sheet date and the amount of provisions formed for unearned premiums.
For those classes of insurance where an inadequate amount of unearned premium provisions in relation to the expected loss
event is determined, the Group forms additional provisions for unexpired risk and recognises them in the financial statements
as liabilities in the scope of other insurance technical provisions.
Result of the adequacy test for 2009
LAT test results have not shown any deficit in the amount of the obligations created under the unearned premiums, provisions
for claims, reserves and provisions for bonuses and discounts for property and health insurance as at 31 December 2009.
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The Group KD Group Annual Report 2009
Notes to Consolidated Financial Statements as at and for the year ended 31 December 2009
3.1.3 Estimate of future benefit payments and premiums arising from long-term insurance contracts
The determination of the liabilities under long-term insurance contracts is dependent on estimates made by the Group.
Estimates are made as to the expected number of deaths for each of the years in which the Group is exposed to risk. The
Group bases these estimates on standard industry and national mortality tables that reflect recent historical mortality
experience, restated where appropriate to reflect the Group’s own experience. For contracts that insure the risk of longevity,
appropriate but not excessively prudent allowance is made for expected mortality improvements. The estimated number of
deaths determines the value of the benefit payments and the value of the valuation premiums. The main source of uncertainty
is that epidemics such as AIDS, SARS and wide-ranging lifestyle changes, such as in diet, smoking and exercise habits,
could result in future mortality being significantly worse than in the past for the age groups in which the Group has significant
exposure to mortality risk. However, continuing improvements in medical care and social conditions could result in
improvements in longevity in excess of those allowed for in the estimates used to determine the liability for contracts where
the Group is exposed to longevity risk.
For long-term insurance contracts with fixed and guaranteed terms, estimates are made in two stages. Estimates of future
deaths, voluntary terminations, investment returns and administration expenses are made at the inception of the contract and
form the assumptions used for calculating the liabilities during the life of the contract. A margin for risk and uncertainty is
added to these assumptions. These assumptions are "locked in" for the duration of the contract. New estimates are made
each subsequent year in order to determine whether the previous liabilities are adequate in light of these latest estimates. If
the liabilities are considered adequate, the assumptions are not altered. If they are not adequate, the assumptions are altered
("unlocked") to reflect the best estimate assumptions. A key feature of the adequacy testing for these contracts is that the
effects of changes in the assumptions on the measurement of the liabilities and related assets are not symmetrical. Any
improvements in estimates have no impact on the value of the liabilities and related assets until the liabilities are
derecognised, while significant enough deterioration in estimates is immediately recognised to make the liabilities adequate.
3.1.4 Impairment of available-for-sale equity financial assets
The Group determines that available-for-sale equity financial assets are impaired when there has been a significant or
prolonged decline in the fair value below its cost. This determination of what is significant or prolonged requires judgement. In
making this judgement the Group evaluates among other factors, the normal volatility in share price, the financial health of the
investee, industry and sector performance, changes in technology and operational and financing cash flows. Impairment may
be appropriate when there is evidence of deterioration in the financial health of the investee, industry and sector performance,
changes in technology, and financing and operational cash flows.
3.1.5 Impairment losses on loans and receivables
In determining whether an impairment loss should be recorded in the income statement, the Group makes judgments as to
whether there is any observable data indicating that there is a measurable decrease in estimated future cash flows. This
evidence may include observable data indicating that there has been an adverse change in the payment status of borrowers
in a group, or national or local economic conditions that correlate with defaults on assets in the group. Management uses
estimates based on historical loss experience for assets with credit risk characteristics and objective evidence of impairment
similar to that in the portfolio when scheduling its future cash flows. The methodology and assumptions used for estimating
both the amount and timing of future cash flows are reviewed regularly to reduce any differences between loss estimates and
actual loss experience.
3.1.6 Held-to-maturity investments
The Group follows the guidance of IAS 39 when classifying non-derivative financial assets with fixed or determinable
payments and fixed maturity as held to maturity. This classification requires significant judgement. In making this judgement,
the Group evaluates its intention and ability to hold such investments to maturity. If the Group fails to keep these investments
to maturity other than for specific circumstances – for example, selling an insignificant amount close to maturity – it will be
required to reclassify the entire class as available for sale. The investments would therefore be measured at fair value and not
at amortised cost.
3.1.7 Employee benefits
The employee benefits obligations (loyalty bonuses and retirement benefit bonuses) are measured using actuarial valuations;
therefore, some actuarial estimates and assumptions are needed, such as rates of employee turnover, early retirement,
discount rate and future salary levels.
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The Group KD Group Annual Report 2009
Notes to Consolidated Financial Statements as at and for the year ended 31 December 2009
3.1.8 Income taxes
The Group is subject to income taxes in different jurisdictions. Some estimates are required in determining the amount of
provisions for income taxes. There are many transactions and calculations for which the ultimate tax determination is
uncertain during the ordinary course of business. Due to changes in the future income tax rate, some estimates regarding the
disposal of the available-for-sale portfolio have to be made by the management when calculating the deferred tax liability.
Additionally, the management’s best estimates of future taxable profits are used for calculating the deferred tax assets
regarding carry-forward tax losses.
4. Comparatives
During the review of the insurance company operating within the Group, which was performed by the Insurance Supervision
Agency, it was found that some types of life insurance contracts and investment contracts were not kept in accordance with
the policy’s terms and conditions regarding the participation of policyholders in the profits. The insurance company of the
Group complied with the order and changed the methodology used for attributing profits, and restated all the amounts under
the new methodology. Additional mathematical provisions were made for the attribution of profits for groups of contracts
where the calculations under the new methodology were higher. The amount of these provisions as at 1 January 2009 stood
at 1,824,016 euros. In 2009, the insurance company for the first time formed provisions resulting from guaranteed premium
factors used to calculate the supplementary retirement pension. As at 1 January 2009, mathematical provisions for the
entitlement total 261,323 euros.
The insurance company made additional provisions for investment contracts relating to attributed profits for groups of
contracts where the calculations under the new methodology were higher. The amount of these provisions as at 1 January
2009 amounted to 64,144 euros.
In its financial statements, the KD Group eliminated the error by restating each individual category in the 2008 financial
statements. Adjustments to the 2008 financial statements refer entirely to the reporting of life insurance segment, namely
standard life insurances and investment insurances. In the process of eliminating the error, the amount of insurance technical
provisions (mathematical provisions) and investment contracts for 2008 increased. The increase in mathematical provisions
consequently resulted in reduction of retained earnings of 824,710 euros on the liabilities side, and increase of deferred tax
assets of 219,227 euros on the assets side. The increase in investment contracts resulted in reduction of retained earnings of
873,381 euros and increase in deferred tax assets of 232,165 euros.
Given that the life insurance business at the end of 2008 showed a loss, this adjustment had no impact on the 2008 income
statement, and the audited income statement for 2008 was not restated. However, the adjustment of the investment contracts
for the past years did affect the 2008 income statement.
Balance sheet
2008 2008
reported restatements- restated
correction of
(in EUR) past years
Total assets 795,012,309 451,392 795,463,701
Deferred income tax assets 20,207,937 219,227 20,427,164
Income tax receivables 7,027,916 232,165 7,260,081
Equity 193,945,385 (1,698,091) 192,247,294
Retained earnings (8,597,223) (1,698,091) (10,295,314)
Liabilities 294,044,113 2,149,483 296,193,596
Insurance contracts 277,680,949 2,085,339 279,766,288
Gross non-current insurance contracts with DPF 66,935,728 2,085,339 69,021,067
Gross non current insurance contracts with DPF-math.prov.-guaranteed
element 66,898,431 261,323 67,159,754
Gross non-current insurance contracts with DPF-math.prov.-DPF element 37,297 1,824,016 1,861,313
Investment contracts 16,330,164 64,144 16,394,308
Investment contract with DPF 16,272,396 64,144 16,336,540
Investment contracts with DPF-non-current-DPF element 11,857 64,144 76,001
Total equity and liabilites 487,989,498 451,392 488,440,890
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The Group KD Group Annual Report 2009
Notes to Consolidated Financial Statements as at and for the year ended 31 December 2009
2007 2007
reported restatement- restated
correction of
(in EUR) past years
Total assets 956,047,402 232,165 956,279,567
Income tax receivables 2,870,170 232,165 3,102,335
Equity 340,264,367 (1,698,091) 338,566,276
Retained earnings 58,565,835 (1,698,091) 56,867,744
Liabilites 615,783,035 1,930,256 617,713,291
Insurance contracts 255,943,534 2,085,339 258,028,873
Gross non-current insurance contracts with DPF 62,547,906 2,085,339 64,633,245
Gross non current insurance contracts with DPF-math.prov.-guaranteed
element 61,340,938 261,323 61,602,261
Gross non-current insurance contracts with DPF-math.prov.-DPF element 1,206,968 1,824,016 3,030,984
Investment contracts 15,604,274 64,144 15,668,418
Investment contract with DPF 15,512,160 64,144 15,576,304
Investment contracts with DPF-non-current-DPF element 614,823 64,144 678,967
Deferred tax 2,527,886 (219,227) 2,308,659
Total equity and liabilities 487,989,498 232,165 488,221,663
5. Risk management
The Group’s activities expose it to a variety of risks: strategic risks, insurance and financial risks, operating risks and general
business risks. Since the insurance represents a substantial part of the Group's activities, the management of insurance
risks is crucial for the Group.
Strategic risks refer to the Group’s long-term development as much as to each of its subsidiaries. The management of the
Group manages these risks, defining its vision and strategy and monitoring their appropriateness on a regular basis.
According to the diversity of the Group’s activities, appropriate long-term investment decisions are the key factor when
managing strategic risks. The corporate governance of the Group helps it to pursue long-term business development and
growth to achieve the required rate of return.
The Group is exposed to financial risks through its financial assets and liabilities, reinsurance receivables and insurance
liabilities. The principal financial risk is the possibility that the inflows from financial investments will not be sufficient to cover
the outflows arising from insurance contracts. The most significant components of this risk are the risk of changes in interest
rates and the prices of securities, currency risk and credit risk.
The primary purpose of the financial risk management process is to maintain the stability of operations and reduce the
exposure to individual risks to an acceptable level. Because of its highly diversified activities, the Group is mainly faced with
insurance and financial risks.
Risk management is a continuous cyclical process, which can be divided into three stages. In the first stage, potential risks
are identified. In the second stage, individual risks are modelled and measured. These models serve as a basis for measuring
the level of exposure of individual companies in the Group and the Group itself to individual risks. On the basis of identification
and measurement of risks in the Group, the management adopts adequate measures for reducing or controlling these risks
(stage three). Measures used by the management vary and depend on the level of exposure and the type of risk.
The management of the Group manages risks present in individual companies in the Group and at the level of the entire
Group. It thereby sets guidelines concerning the balance between the risks, returns and capital, performs periodic controls,
and sets guidelines for implementation of business policies and strategy for individual companies in the Group.
Individual companies in the Group have established a system of reporting for the needs of the management that enables
regular monitoring of risks to which they are exposed. The insurance companies in the Group have set up investment and
liquidity committees, which take care of the ALM function.
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Notes to Consolidated Financial Statements as at and for the year ended 31 December 2009
Types of risks
5.1 Insurance risk
Risk related to the insurance policy represents the possibility that the event insured against actually occurs and uncertainty in
relation to the amount of the sum insured or indemnity. It is the nature of insurance contracts that insurance risks are
incidental and unpredictable; however, the main risk for the insurer is the possibility that claims and benefits exceed the
amount of insurance liabilities (technical provisions) created for a portfolio of insurance contracts using statistical methods.
This may happen because of a change in the frequency of claims or their amount, which can be higher than expected.
Insured events are incidental, which means that their number and amount vary in individual years and in relation to
statistically established averages. Experience shows that the larger the portfolio of similar insurance contracts, the smaller the
relative variability of the expected outcome will be. In addition, a more diversified portfolio is less likely to be affected by a
change in any subset of the portfolio.
Insurance companies in the Group have developed their own policy of concluding insurance contracts with the aim of
spreading the assumed risks and achieve, within each individual category, a sufficient amount of risk population to reduce the
variability of expected results. The principal means for reducing insurance risks is reinsurance, i.e. the transfer of risks that
exceed a predetermined amount to a reinsurance company.
When developing a new insurance product, it is very important that the parameters defining the insurance premium are
assessed adequately. The risk accepted by the Group at the inception of an insurance contract is reflected in the price, i.e.
the insurance premium. If the parameters defining the insurance premium are not assessed adequately when developing a
new insurance product, this is a risk for the Group to which it is exposed during the entire life cycle of the insurance product.
In the context of insurance risk, the Group is exposed to underwriting process risk, product design risk, pricing risk, economic
environment risk, policyholder behaviour risk, reserve risk and claims risk. Insurance risks are also managed with reinsurance
protection.
5.1.1 Description of risks
Insurance activities are based on managing insurance risks. Insurance risks apply to risks accepted by the insurer from the
policyholder. Insurance risks are random and unpredictable. At the signing of an insurance contract, the insurer accepts the
risk to repay the insured the agreed contractual amount if an insured event occurs or if the contract expires, whereas when
the insured event will occur is uncertain.
Insurance cases are random; their number and amounts vary from year to year and deviate from statistical averages. The
Group is therefore engaged in diversifying and increasing its portfolio. This allows it to disperse the risk and lower the
variability of expected events. An important instrument to lower insurance risks is reinsurance, i.e. the transfer of risks which
exceed a predetermined amount to a reinsurer. The Group further manages insurance risks through the effective performance
of internal controls, internal audits and forming appropriate insurance technical provisions to cover potential future liabilities
stemming from existing insurance contracts.
In the management’s opinion, the important risks faced by the Group in its operations are the following:
- Underwriting process risk, the danger of misevaluation of accepted risk. This risk involves mistaken decisions to
underwrite a risk regardless of the risk exposure of the insured, insurance on the basis of inaccurate and incomplete
information on the insured, incorrect information about the amount of maximum potential claims, or potential inappropriate
acquisition of reinsurance coverage by the reinsurer.
The Group manages the aforementioned risk through providing guidelines for accepting insurance risks, using software for
accepting insurance risks, and strict criteria and procedures for accepting insurance risks, especially for large insured sums
and coverage. Also, the Group has concluded an obligatory reinsurance contract with its reinsurer, by which the reinsured
risks over a certain contractually agreed insured sum are automatically reinsured. The Group also monitors claims outcome
and analyses any worsening thereof.
- The risk of inadequate assessment of liabilities stemming from insurance contracts (reserve risk) is the risk that these
reserves will not be adequate to cover the liabilities stemming from accepted risks, or the risk that future claims payments will
exceed the evaluated amount of liabilities.
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Notes to Consolidated Financial Statements as at and for the year ended 31 December 2009
The Group regularly checks the adequacy of liability calculations and the adequacy of assumptions used in the calculation of
higher liabilities stemming from insurance contracts. The Group also carries out liability adequacy tests. If the liability
adequacy test indicates that the liabilities are understated, they are increased.
In the case of property insurance, an accurate estimate of the obligations of the reported and unreported claims is the most
important factor, i.e. the assessment of liabilities assumed for any claims that are already registered, and obligations under
insurance contracts for incurred but not reported claims (IBNR). Inaccurately estimated liabilities for reported claims also
affect the calculation of IBNR. Contingencies may occur in the Group for which the obligations for claims were not designed
(eg, in the past, asbestosis), or liability insurances, where there is a gap of a number of years between the conclusion of the
insurance contract and the time when the claim is reported.
For insurance contracts with DPF component and unit-linked insurance contracts, assumptions on future mortality, interest
rates, contract terminations and administrative costs are applied. These assumptions are used to determine liabilities
stemming from the insurance contract. The assumptions also include a risk adjustment.
For estimations on the mortality rate, mortality tables are used, as in the past the portfolio of insurance contracts has been too
small for it to be able to rely on its own experience. Thus, for insurances for the event of death and insurances for the event of
death and maturity, the Group uses Slovenian mortality tables made in 1990–1992, and for annuity insurance it uses Austrian
annuity tables from the year 1996. In comparison with 2008, the Group has not changed its assumptions regarding population
mortality. In the context of managing insurance risk, actuarial services are constantly checking the applied assumptions
against the actual damage result, by individual insurance product.
It is the management’s assessment that Slovenian mortality tables adequately reflect expectations with regard to the maturity
and mortality rate of the Slovenian population.
In its long-term insurance products, the Group uses interest rates spanning from 2.75% (new insurance products) to 4% (older
products). The adequacy of returns on investments of insured liabilities in the future is checked on a regular basis.
On each reporting date the assumptions are reset to reflect current assumptions and are used to check whether the liabilities
have been adequately evaluated. If the liabilities are inadequate, the assumptions are changed to reflect the current state.
Current assumptions do not contain a risk adjustment.
The assumption on mortality is determined using the statistical mortality rate and analyses of actual mortality of the insurance
portfolio in the past and current year. Also, in cases of disability, statistical tables and the insurer’s own experience are used.
The Group also regularly analyses the duration of insurance contracts and monitors the movements of such durations over
the period by main product and, as necessary, by sales channel if more significant deviations occur. These analyses are used
when estimating the duration of insurance contracts with a view to providing the best possible assessment of the insured’s
behaviour.
The return on investment affects the amount of future payouts from insurance contracts. When determining returns, the Group
considers government bonds as risk-free securities, and for other securities risk adjustments are applied. Considering this and
considering the structure of investments for covering liabilities, the expected returns of the investment portfolio are calculated.
Future costs are determined on the basis of current costs. Additionally, the assumption of future inflation is also used, which is
based on the EU’s long-term projections for the euro currency.
- Pricing risk applies to the risk that the amount of the insurance premium is not adequate for covering the insurance
liabilities stemming from claims and operating costs. The reasons can vary, e.g. unsuitable statistical data, inadequate
assessment of claims events, low premium due to competition, unsuitable premium for new products, unsuitable mortality,
annuity, morbidity tables, inadequate amount of expenses calculated into the price of the product. Furthermore, we can speak
about the adequacy of the probability tables used, which further expose the Group to risks of natural death, longevity, critical
illness and accident.
Already in the new product planning stage, the Group diligently checks and acquires the necessary statistics to confirm the
suitability of the assumptions used. In the case of high-risk products such as additional coverage for critical illness, the
Group’s general terms and conditions allow the possibility of subsequent changes in the amount of the insurance premium if
new statistics or claims events indicate that the premium is too low. Similarly, the Group diligently monitors the amount of
actual costs and, after analysing these costs, calculates the amount of costs to include in the price of individual products,
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Notes to Consolidated Financial Statements as at and for the year ended 31 December 2009
which depends on the type of product, special costs involved in the product, amount of commission to insurance agents and
other potential costs. The Group also measures and monitors the profitability of individual products.
- Product design risk is the risk that, when calculating the insurance premium, the Group will be exposed to the danger of
non-consideration of the potential for the occurrence of new diseases and accidents which could significantly affect the
movement of future claims cases. This risk is important for life insurance.
As previously mentioned in under-pricing risk, in certain higher-risk insurance products the Group does not guarantee the
amount of the insurance premium during the insurance coverage period. In addition to that, certain increases are used in the
mortality and morbidity tables. The Group also follows mortality and morbidity trends. Certain modern illnesses are excluded
from the insurance terms and conditions. In this context the Group has established cooperation with a reinsurer, which
transfers certain knowledge and findings to the Group.
- Cost risk is the risk for potential losses which could occur as the result of a misevaluation of costs when setting prices or a
misevaluation of changed circumstances in the macroeconomic environment, which could cause excess growth in the
Group’s operating costs.
The procedures for managing risk related to unsuitable cost assessment are based on an established system of recording
and allocating costs to cost centres and cost units, on constant monitoring of the movement of costs, and on adopting
appropriate measures in case of unfavourable developments.
- The risk that social circumstances will change so as to have an adverse effect on the Group can be classified under
economic environment risk. Increase in the unemployment rate and reduction of purchasing power can cause more claims
in credit insurance, fewer insurance contracts concluded, and more cancellations of life and pension insurance contracts. This
group may also include the risk of changes in case law when adjudicating claims.
- Policyholder behaviour risk – insurance fraud.
- Claims risk involves the risk that claims will be higher than expected in number and/or amount, and the risk of an excessive
portion of self-coverage due to inadequate reinsurance coverage, especially in cases of disasters.
In life insurance contracts with coverage for the event of death, the number and amount of damages is most affected by
epidemics and changes in lifestyle, such as a change in dietary habits, physical exercise or smoking. For life insurance
contracts where the insured event is maturity, and for health insurance contracts, the greatest risk factor is the advancement
of medicine and improvement of the population’s social status, increasing longevity.
In property insurance a significant risk factor is climate change, which increases the frequency of extreme weather events
(flooding, hail, etc.). For liability insurance characterised by lengthy procedures which can take several years for claims cases
to be resolved, a significant risk factor is the increase of legal actions, especially involving non-material claims (coverage and
amount).
In the interest of managing insurance risk, the Group has concluded reinsurance contracts whereby it transfers a portion of
this risk to the reinsurer. Each financial year the management adopts a planned reinsurance programme, which includes
calculations of all maximum own insurance shares by insurance category, as well as the maximum coverage table and certain
procedures, bases and criteria for determining the maximum possible claims. The reinsurance programme consists of
traditional proportional and non-proportional forms of reinsurance coverage, and it also includes a contract for the event of
natural disasters.
5.1.2. Frequency and amount of claims
Concentration of insurance risk can stem from a single insurance contract or from a smaller number of contracts covering low
probability events with high claims potential, such as insurance for earthquakes and other natural disasters.
In insurance for the event of death, the greatest effects which can increase the frequency of claims are epidemics and lifestyle
changes (e.g. changed dietary habits, exercise and smoking) which could lead to premature claims or greater claims than
anticipated. For insurance contracts where the insured event is survival, the greatest risk factor is the advancement of
medicine and improvement of the population’s social standard, increasing longevity.
The insurance contract portfolio contains insurance contracts where the Group accepts the risk of coverage in the event of
death. In cases of insurance coverage for the event of death, the Group guarantees coverage up to the insured sum during
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Notes to Consolidated Financial Statements as at and for the year ended 31 December 2009
the insurance coverage period. During the coverage period under a mixed life insurance contract, the Group guarantees the
payment of the insured sum in the event of death or maturity.
With a view towards managing the Group’s exposure to insurance risk, the management has concluded a reinsurance
contract, transferring a part of the insurance risk onto the reinsurer.
The following table represents the dispersal of the insurance portfolio and exposure to large insurers.
Share of the largest insured in the joint insurance portfolio:
(in EUR) 2009
Total premium Total premium of
of the largest 10 Share in total the largest 100 Share in total
clients premium clients premium
Life insurance 41,192 0.20% 211,265 1.02%
Unit-linked insurance 630,256 0.61% 2,317,908 3.30%
Property and health insurance 17,967,054 7.57% 31,457,854 13.26%
Total 18,438,502 33,987,027
(in EUR) 2008
Total premium Total premium of
of the largest 10 Share in total the largest 100 Share in total
clients premium clients premium
Life insurance 36,664 0.46% 194,245 2.44%
Unit-linked insurance 343,860 0.56% 1,623,822 2.62%
Property and health insurance 18,544,000 7.71% 32,118,000 13.36%
Total 18,924,524 33,936,067
Considering the fact that their share is relatively small in comparison with the overall portfolio, we can deduce that the Group’s
portfolio is sufficiently diversified and that it is not overly exposed to a few large clients.
In the property insurance segment, the risks to which the Group is exposed vary depending on the industry in which the
insured is active. The table below shows the concentration of liabilities from property insurance by industry in which the
insured is active. The maximum loss (maximum sum insured) shown is categorised by size into three categories.
Concentration of the obligations arising from property insurance by industry at 31 December 2009
2009 up to EUR 300,000 EUR 300,000 to EUR 1,000,000 more than EUR 1,000,000
Without With Without With Without With
reinsurance reinsurance reinsurance reinsurance reinsurance reinsurance
Building risks 31,300,309 29,034,541 40,225,365 10,108,332 451,777,613 295,789,880
Industrial risks 493,425,127 430,258,967 574,454,403 495,735,619 3,018,146,248 1,200,326,028
Commercial risk 3,062,329,653 2,651,300,416 1,701,254,664 1,500,276,352 6,004,855,327 2,686,270,666
Residential risks 5,881,968,324 5,383,250,336 459,985,246 411,253,262 2,657,343 1,080,000
Total 9,469,023,413 8,493,844,259 2,775,919,677 2,417,373,563 9,477,436,531 4,183,466,574
Concentration of the obligations arising from property insurance by industry at 31 December 2008
2008 up to EUR 300,000 EUR 300,000 to EUR 1,000,000 more than EUR 1,000,000
Without With Without With Without With
reinsurance reinsurance reinsurance reinsurance reinsurance reinsurance
Building risks 32,833 29,550 36,975 9,705 447,091 301,087
Industrial risks 493,395 444,056 574,454 495,736 2,969,253 1,165,326
Commercial risk 2,956,592 2,660,932 1,710,413 1,511,119 6,121,183 2,688,271
Residential risks 5,930,560 5,337,504 455,885 406,375 2,657 1,080
Total 9,413,380 8,472,042 2,777,728 2,422,934 9,540,185 4,155,764
114
The Group KD Group Annual Report 2009
Notes to Consolidated Financial Statements as at and for the year ended 31 December 2009
In the life insurance segment, a potential concentration of insurance risk can be seen in contracts with extremely high sums
insured.
The table below indicates the concentration of insurance risk for life insurance, with the total sum insured risk categorised into
four categories, depending on the amount of the insured sum involved in the individual insurance contract.
Total sum insured risk of all contracts as at 31
December 2009
Without reinsurance With reinsurance
EUR 0 – 9,999 424,310,970 417,283,571
EUR 10,000 – 19,999 753,916,669 744,668,747
EUR 20,000 – 29,000 520,037,388 508,974,241
More than EUR 30,000 553,649,260 388,275,561
Total 2,251,914,287 2,059,202,120
Total sum insured risk of all contracts as at 31
December 2008
Without reinsurance With reinsurance
EUR 0 – 9,999 507,089,621 501,727,298
EUR 10,000 – 19,999 768,685,463 760,309,941
EUR 20,000 – 29,000 477,139,967 467,031,052
More than EUR 30,000 529,108,845 363,798,354
Total 2,282,023,896 2,092,866,645
For annuity insurance, we present risk concentration with total annual annuities classified into five categories, depending on
the amount of the annual annuity per individual insured. As the annual annuity we consider the amount which the insured
would receive if the contract was already due for payout.
Structure of the amount of annual annuities
(in EUR)
Annual annuity per insured TOTAL ANNUAL ANNUITIES 2009 TOTAL ANNUAL ANNUITIES 2008
on the final date of the year amount % amount %
EUR 0 – 999
810,094 14.66 794,917 14.71
EUR 1,000 –1,999
1,974,058 35.72 1,935,082 35.81
EUR 2,000 – 2,999
1,132,179 20.48 1,112,859 20.59
EUR 3,000 – 3,999
675,106 12.21 656,121 12.14
More than EUR 4,000 935,550 16.93 904,941 16.75
Total 5,526,987 100.00 5,403,920 100.00
5.1.3 Property and health insurance contracts - assumptions and changes in assumptions
a.) The process of determining assumptions
The main assumptions which affect disclosure of liabilities stemming from property insurance contracts relate to establishing
liabilities for claims. The overall calculation of reserves is based on estimates and assumptions by completing the
development of incurred claims.
115
The Group KD Group Annual Report 2009
Notes to Consolidated Financial Statements as at and for the year ended 31 December 2009
The calculation of provisions for claims is divided into two parts, considering the nature of individual claims:
• Claims reported but not yet paid as at the balance sheet date
On the basis of a review of all claims reported but not yet paid out as at the balance sheet date, an assessment is made on
expected liabilities stemming from future payouts of individual claims. Larger cases of material claimsare appraised by in-
house appraisers, and non-material clams (e.g. liability claims) and claims in legal proceedings are assessed by in-house
legal experts (lawyers). Liabilities from claims which are paid out in the form of annuities are assessed by the Group as the
present value of future payouts, where a 2.6% discount factor is applied.
• Claims incurred but not reported as at the balance sheet date (IBNR)
IBNR liabilities are established on the level of insurance category using the triangle (chain ladder) method or statistical
method.
The chain ladder method can be based on recognised or accrued claims with monthly or annual development factors,
depending on the characteristics of the incidence of loss and procedures for resolving claims. The claims are arranged in a
triangle, where the rows represent the year the claims were incurred, and the columns represent the number of years from the
time the clams were incurred to recognising or accrual of the claims. Prediction of final claims is based on the calculation of
average annual development factors.
The statistical method is based on reviewing past claims. The IBNR calculation is made on the level of individual insurance
category as the mathematical product of the estimated number of IBNR damages and the estimated value of IBNR claims.
The estimated number of IBNR claims reported after 1 January 2009 is calculated by multiplying the number of reported
claims in 2008 by the average factor of claims reported later in relation to all reported claims over the past ten years. The
estimated value of IBNR claims equals the average value of IBNR claims in the past year or the average value of claims paid
in the past year if there was a relatively small number of claims.
b) Changes in assumptions
There were no changes in assumptions for insurance contracts in 2009 compared to 2008.
c.) Development of claims
The tables below show claims development for property insurance and extra accident insurance as part of life insurance
policies.
Property insurance (excluding voluntary health insurance) in EUR thousand for the year 2009
Year in
which
claims
were Cumulative claim payments in relation to the number of years passed
incurred between the reporting date and date of payment
0 1 2 3 4 5 6 7 8 9 10
1999 29,121 41,968 45,344 47,052 48,042 48,690 49,363 49,705 50,006 50,185 50,472
2000 30,890 45,437 48,806 50,788 51,569 52,024 52,538 52,897 53,220 53,509
2001 33,180 50,050 54,080 56,386 57,373 57,930 58,636 59,178 59,606
2002 33,403 51,210 54,992 57,189 57,811 58,524 59,181 59,509
2003 38,141 58,733 64,094 66,976 68,168 69,026 69,902
2004 47,218 69,325 73,273 75,673 77,070 77,991
2005 47,541 69,220 74,561 77,632 79,124
2006 46,268 73,223 78,161 81,129
2007 61,395 86,894 93,231
2008 66,077 98,471
2009 62,421
116
The Group KD Group Annual Report 2009
Notes to Consolidated Financial Statements as at and for the year ended 31 December 2009
Property insurance (excluding voluntary health insurance) in EUR thousand for the year 2008
Year in
which
claims
were Cumulative claim payments in relation to the number of years passed between
incurred the reporting date and date of payment
0 1 2 3 4 5 6 7 8 9
1999 29,121 41,968 45,344 47,052 48,042 48,690 49,363 49,705 50,006 50,185
2000 30,890 45,437 48,806 50,788 51,569 52,024 52,538 52,897 53,220
2001 33,180 50,050 54,080 56,386 57,373 57,930 58,636 59,178
2002 33,403 51,210 54,992 57,189 57,811 58,524 59,181
2003 38,141 58,733 64,094 66,976 68,168 69,026
2004 47,218 69,325 73,273 75,673 77,070
2005 47,541 69,220 74,561 77,632
2006 46,268 73,223 78,161
2007 61,395 86,894
2008 66,077
Life insurance - extra accident insurance in EUR thousand for the year 2009
Year in
which Cumulative claim payments in relation to the number of years passed
claims between the reporting date and date of payment
were 0 1 2 3 4 5 6 7 8 9 10
incurred
1999 294 516 556 598 624 625 625 625 626 626 626
2000 284 473 540 558 558 558 568 568 568 568
2001 242 477 552 602 610 615 619 619 619
2002 233 432 492 520 531 538 538 538
2003 151 246 300 319 324 325 325
2004 182 293 319 330 331 332
2005 196 396 462 483 517
2006 278 552 636 675
2007 302 534 655
2008 336 673
2009 294
Life insurance - extra accident insurance in EUR thousand for the year 2008
Year in
which
claims
were Cumulative claim payments in relation to the number of years passed between
incurred the reporting date and date of payment
0 1 2 3 4 5 6 7 8 9
1999 294 516 556 598 624 625 625 625 626 626
2000 284 473 540 558 558 558 568 568 568
2001 242 477 552 602 610 615 619 619
2002 233 432 492 520 531 538 538
2003 151 246 300 319 324 325
2004 182 293 319 330 331
2005 196 396 462 483
2006 278 552 636
2007 302 534
2008 336
117
The Group KD Group Annual Report 2009
Notes to Consolidated Financial Statements as at and for the year ended 31 December 2009
5.1.4. Long-term life insurance – assumptions, changes in assumptions and sensitivity
a.) Procedure of establishing assumptions
Liabilities from life insurance contracts with DPF were calculated using assumptions on future mortality from statistical tables.
The portfolio of insurance contracts was too small in the past, so for the purpose of estimating mortality the following statistical
tables are used:
- for life insurance contracts with DPF, Slovenian morality tables from 1992 were used;
- for annuity products, German mortality tables from 1987 were used
- cancellations,
- returns on investments (rate 2.6%-4%).
These assumptions are set at the time of concluding the contract and remain the same throughout the term of insurance, or
safer assumptions are used in the calculation of liability to provide for the possibility of unfavourable deviation from
expectations. An additional adjustment is applied to these assumptions to account for risk and uncertainty.
New estimates are made for each subsequent financial year for the purpose of checking the adequacy of liabilities determined
in this manner. If it is determined that the established liabilities are adequate, assumptions remain unchanged. If the
established liabilities prove to be inadequate, assumptions are revised to reflect new expectations. Consequently, the
provisions are measured according to appropriate level.
The assumptions used for insurance contracts described hereunder are as follows:
• mortality
Depending on the type of contract, the appropriate mortality table is chosen and adjusted to reflect actual mortality
of the insurance portfolio in past years and the current period.
• cancellations
An analysis of the Group’s experience of the past three years is carried out by application of statistical methods, and
the appropriate cancellation percentage is determined. Cancellation percentages vary by type of product and term
of the insurance period. The analysis is carried out in order to determine the best estimate of the policyholders’
behaviour.
• returns on investments
The Group established assumptions for returns on investments by taking into account present returns on
government-issued securities and other financial instruments on the market. In addition to this, the structure of
assets which are used to cover liabilities stemming from life insurance contracts (long-term business fund) is taken
into consideration by determining weighted average returns.
• costs
Future costs are determined on the basis of current costs. The future inflation assumption was also applied.
b.) Changes in assumptions
In 2009 the Group made no changes in the assumptions used in the calculation of insurance contracts.
118
The Group KD Group Annual Report 2009
Notes to Consolidated Financial Statements as at and for the year ended 31 December 2009
5.1.5. Sensitivity analysis
The Group made a sensitivity analysis of net profits before taxes on the last day of the financial year, with consideration to
various parameters.
Sensitivity test – parameters
Sensitivity factor Factor description
Technical interest rate (insurance contracts only) Effect of a change of the technical interest rate by ±1%
Effect on the increase/decrease of all costs except the costs of
Costs and expenses acquisition by ±5%
Mortality (life insurance only) Effect of a 5% increase in mortality
Mortality in annuity insurance (pension and annuity
insurance) Effect of a 5% decrease in mortality
Claims ratio (property and health insurance only) Effect of a 5% increase in the claims ratio
The above factors were used in actuarial and statistical models for calculating the changes of net profits of the Group. The
table below shows the effect of changes of key factors on the net earnings of the Group before taxes.
Effect on the Group’s net profit before tax for 2009
Property
Life Unit-linked insurance
insurance life excluding Health Financial
policies insurance health insurance contracts
(in EUR) with DPF policies insurance policies with DPF Total
policies
Factor
Costs +5% (116,964) (58,598) (2,237,029) (820,820) (10,290) (3,243,701)
Costs -5% 116,964 58,598 2,237,029 820,820 10,290 3,243,701
Technical interest rate +1% 6,829,864 - - - 1,114,120 7,943,984
Technical interest rate -1% (8,421,135) - - - (1,394,990) (9,816,125)
Mortality +5% (198,153) - - - - (198,153)
Mortality in annuity insurance -
5% (166,036) - - - - (166,036)
Claims ratio +5% (344,948) (315,484) (6,935,286) (5,006,688) (79,898) (12,682,304)
Claims ratio -5% 344,948 315,484 6,935,286 5,006,688 79,898 12,682,304
Effect on the Group’s net profit before tax for 2008
Property
insurance
Life Unit-linked excluding
insurance life health Health Financial
policies insurance insurance insurance contracts
(in EUR) with DPF policies policies policies with DPF Total
Factor
Costs +5% (131,030) (76,000) (2,156,000) (778,000) (10,000) (3,151,030)
Costs -5% 131,030 76,000 2,156,000 778,000 10,000 3,151,030
Technical interest rate +1% 7,712,010 - - - 1,213,000 8,925,010
Technical interest rate -1% (9,439,010) - - - (1,528,000) (10,967,010)
Mortality +5% (216,395) - - - - (216,395)
Mortality in annuity insurance -
5% 158,711 - - - - 158,711
Claims ratio +5% (357,408) (357,000) (6,851,000) (4,755,000) (87,000) (12,407,408)
Claims ratio -5% 357,408 357,000 6,851,000 4,755,000 87,000 12,407,408
119
The Group KD Group Annual Report 2009
Notes to Consolidated Financial Statements as at and for the year ended 31 December 2009
5.1.6. Risk management in the area of reinsurance protection
General description of the purpose and goals of reinsurance protection
Reinsurance enables the Group to underwrite also insurance contracts that exceed Group's own capacities, i.e. to take over
risks above the Groups own retention and provide for solvency and liquidity of operations. Thus it represents a key element of
risk management in insurance industry / business.
The Group pursues the objective to achieve the optimum protection both against individual large claims and against the
aggregate exposure of the Group's insurance portfolio to natural and other insurance hazards.
The Group decides on the form and structure of the reinsurance based on the level of retention of the insurer and the profiles
of insurance portfolio.
Contractual reinsurance ensures automatic cover of the vast majority of underwritten risks, even in the event of potential risk
assessment errors.
For exceptional risks which exceed the contractual reinsurance protection by scale or content of the cover provisions, the
Group ensures additional special facultative reinsurance protection. The program of planed reinsurance is composed of
traditional proportional and non-proportional types of reinsurance protection, and is by structure and by extent of covers
practically the same as in business year 2008. Through operational risks management the Group carefully monitors the
frequency and the scale of the risks reinsured either under ordinary contractual provisions or under special facultative
reinsurance provisions.
Basic assumptions used in sensitivity tests
We assume two types of reinsurance protection risks. The first risk is whether the structure and scale of protection have been
adequately chosen, which can be checked by simulation of whether decreasing reinsurance protection would significantly
decrease net profit or loss, which would consequently jeopardise the Group’s capital adequacy. The second risk is whether
the profit or loss would worsen significantly if an above-average number of large-scale and mass losses (which would also
involve above-average amounts) occurred in a given period.
Two income sensitivity tests have been designed to assess reinsurance protection risk: first, the test of sensitivity to a
decrease in reinsurance protection, and second, the test of sensitivity to above-average incidence of loss (for large-scale and
mass losses).
Analysis of the group portfolio from the aspect of reinsurance risk
In the largest group of other property insurance contracts, we analysed the sensitivity of individual portfolios of insurance
categories/groups of insurance categories to large-scale and mass losses, with the aim of focusing the reinsurance risk
management analysis on the most exposed insurance categories. This analysis showed that the reinsurance risk is most
significantly affected, both in terms of the amount and number of potentially large-scale and mass losses, by the portfolio of
auto liability insurance and the portfolio of fire and other damage insurance. These portfolios also significantly affect the profit
or loss; therefore the sensitivity analysis was made on the basis of these reinsurance contracts.
120
The Group KD Group Annual Report 2009
Notes to Consolidated Financial Statements as at and for the year ended 31 December 2009
Concentration of reinsurance
for 2009 (in EUR thousand)
Contract year 2009
Effect of
Structure of the reins.
Own share/ the Accrued Reserved outcome
priority in Reinsurance reinsurance Reinsurance reins. reins. on the
Type of reinsurance EUR premium premium commission losses losses profit
Surplus reinsurance of fires 1,000,000 2,068 18.97% 310 2,045 5,104 5,391
Quota share reinsurance of fires 900,000 833 7.64% 167 202 198 (266)
Surplus reinsurance of technical
reserves 400,000 643 5.90% 96 176 28 (343)
Quota share reinsurance of
technical reserves 360,000 713 6.54% 143 250 168 (152)
Quota share reinsurance of
earthquakes - 1,430 13.11% 357 - 1 (1,072)
Risk XL reinsurance of fires 600,000 128 1.17% - - - (128)
Risk XL technical reinsurance 120,000 63 0.58% - - - (63)
Cat XL property reinsurance excl.
vehicle insurance 1,000,000 845 7.75% - 318 48 (479)
Cat XL reinsurance annual
aggregate excl. vehicle insurance 2,000,000 149 1.37% - - 325 176
Total fire and technical insurance 6,872 63.02% 1,073 2,991 5,872 3,064
XL reinsurance of auto liability and
green card 300,000 926 8.49% - - 769 (157)
XL reinsurance of comprehensive
auto insurance 150,000 52 0.48% - - - (52)
Cat XL property reinsurance -
vehicle insurance 1,000,000 930 8.53% - 331 431 (168)
Cat XL property reinsurance excl.
vehicle insurance 2,000,000 358 3.28% - - 338 (20)
Total auto insurance 2,266 20.78% - 331 1,538 (397)
Other property insurance 1,085 9.95% 49 - - (1,036)
Health insurance policies - 0,00% - - - -
Life insurance 681 6.25% 103 186 54 (338)
TOTAL CONTRACT YEAR 2009 10,904 100,00% 1,225 3,508 7,464 1,293
121
The Group KD Group Annual Report 2009
Notes to Consolidated Financial Statements as at and for the year ended 31 December 2009
Concentration of reinsurance for 2008 (in EUR thousand)
Contract year 2008
Effect of
Structure of the reins.
Own share/ the Accrued Reserved outcome
priority in Reinsurance reinsurance Reinsurance reins. reins. on the
Type of reinsurance EUR premium premium commission losses losses profit
Surplus reinsurance of fires 1,000,000 1,183 11.89% 260 809 467 353
Quota share reinsurance of fires 900,000 763 7.67% 259 700 152 349
Surplus reinsurance of technical
reserves 400,000 418 4.20% 88 196 119 (15)
Quota share reinsurance of technical
reserves 360,000 646 6.49% 161 204 188 (92)
Quota share reinsurance of
earthquakes 10% 1,278 12.84% 320 - 5 (954)
Risk XL reinsurance of fires 600,000 98 0.98% - - - (98)
Risk XL technical reinsurance 120,000 117 1.18% - - - (117)
Cat XL property reinsurance excl.
vehicle insurance 600,000 1,098 11.04% - 4,619 2,057 5,579
Total fire and technical insurance 5,601 56.29% 1,088 6,528 2,988 5,004
XL reinsurance of auto liability and
green card 300,000 1,104 11.10% - - 678 (426)
XL reinsurance of comprehensive
auto insurance 150,000 50 0.50% - - - (50)
Cat XL property reinsurance - vehicle
insurance 600,000 1,156 11.62% - 2,141 3,717 (4,702)
Total auto insurance 2,309 23.21% - 2,141 4,395 4,227
Other property insurance 1,426 14.33% 25 - 881 (520)
Health insurance policies - 0.0% - - - -
Life insurance 614 6.17% 129 185 5 (295)
TOTAL CONTRACT YEAR 2008 9,950 100.00% 1,242 8,854 8,269 8,416
122
The Group KD Group Annual Report 2009
Notes to Consolidated Financial Statements as at and for the year ended 31 December 2009
Quantitative analysis of sensitivity test results
In order to assess the consequences of lowering the reinsurance protection, two sensitivity tests were carried out, measuring
the quantitative impact on the net profit or loss. In the sensitivity tests we used the most important reinsurance contracts
covering groups of insurance categories which may potentially have the greatest impact on the Group’s profit or loss due to
the portfolio size or potential for large-scale or mass losses.
Test of sensitivity of the profit or loss to a decrease in reinsurance protection for 2009
Change Change Change Effect of
Initial own Increased in net in net in net change to
(in EUR thousand) share own share premium losses reserves profit
Total proportional reinsurance unchanged - - - -
Risk XL reinsurance of fires 600 900 77 - - 600
Risk XL technical reinsurance 120 200 - - - 120
Cat XL property reinsurance excl. vehicle insurance 1,000 1,500 29 415 - 1,000
Total fire and technical insurance 106 415 - 1,720
XL reinsurance of auto liability and green card 300 400 112 - 154 300
XL reinsurance of comprehensive auto insurance 150 150 - - - 150
Cat XL property reinsurance - vehicle insurance 600 1000 86 585 - 600
Total auto insurance 198 585 154 1,050
TOTAL 304 1,000 154 2,770
Test of sensitivity of the profit or loss to a decrease in reinsurance protection for 2008
Change Change Change Effect of
Initial own Increased in net in net in net change to
(in EUR thousand) share own share premium losses reserves profit
Total proportional reinsurance unchanged - - - -
Risk XL reinsurance of fires 600 900 68 - - 68
Risk XL technical reinsurance 120 120 - - - -
Cat XL property reinsurance excl. vehicle insurance 600 1000 105 461 129 (485)
Total fire and technical insurance 173 461 129 (417)
XL reinsurance of auto liability and green card 300 400 301 - 200 101
XL reinsurance of comprehensive auto insurance 150 150 - - - -
Cat XL property reinsurance - vehicle insurance 600 1000 377 339 271 (233)
Total auto insurance 678 339 471 (132)
TOTAL 851 800 600 (549)
We have illustrated in the tables the effect of the increase of the own share (own funding) on profit of the company when loss
events remained largely unchanged in the contract years 2008 and 2009. The lower volume of the reinsurance protection was
accompanied by the lower written reinsurance premium, as well as the lower volume of the written shares of the reinsurers in
claims, which in turn is reflected on the positive change in the net premium and the negative change in the net claim.
Despite the fact that the initial own shares in the contract year 2009 were slightly higher than those in the contract year 2008,
the impact of the lowering of the reinsurance protection on the change in claims and in outstanding claims provisions in both
years does not differ much.
The profit generated by the Group in both years was influenced by the change in net written premium. The base reinsurance
premium was in the contract year 2008 slightly higher as a consequence of lower own shares in comparison with 2009; hence
in the case of a decrease in the reinsurance protection in 2008, there would also be an increase in net written premium higher
than the increase in net written premium in the contract year 2009.
As a consequence of the developments described above, a comparable increase in the company’s own shares in both years
would result in a decrease in the company’s profit in the amount of 851 thousand euros in the contract year 2008 and 850
thousand euros in the contract year 2009.
123
The Group KD Group Annual Report 2009
Notes to Consolidated Financial Statements as at and for the year ended 31 December 2009
Test of sensitivity of the profit or loss to an above-average number and amount of large-scale and mass losses for
2008 and 2009
Contract year 2009 (in EUR thousand)
Change
Sum of simulated Change in Change in in net Effect of change
gross claims net premium net losses reserves to profit
Total proportional reinsurance - - 1,080 - (1,080)
Risk XL reinsurance of fires - (31) (120) - 89
Risk XL technical reinsurance - (58) (240) - 182
Cat XL property reinsurance excl.
vehicle insurance - (1,123) 836 - (1,960)
Cat XL reinsurance annual agregate - - (1,000) - 1,000
Total fire and technical insurance 15,761 (1,212) 556 - (1,769)
XL reinsurance of auto liability and
green card - - 925 925 (1,850)
XL reinsurance of comprehensive
auto insurance - - - - -
Cat XL property reinsurance - vehicle
insurance - (221) 164 - (385)
Total auto insurance 21,539 (221) 1,089 925 (2,235)
Total 37,300 (1,433) 1,645 925 (3,995)
Contract year 2008 (in EUR thousand)
Change in
Sum of simulated Change in Change in net Effect of change
gross claims net premium net losses reserves to profit
Total proportional reinsurance - - 4,534 - (4,534)
Risk XL reinsurance of fires - (27) (120) - 93
Risk XL technical reinsurance - (117) (240) - 124
Cat XL property reinsurance excl. -
vehicle insurance (520) (2,959) - 2,439
Total fire and technical insurance 11,718 (664) 1,215 - (1,879)
XL reinsurance of auto liability and -
green card - 725 725 (1,450)
XL reinsurance of comprehensive -
auto insurance - - - -
Cat XL property reinsurance - -
vehicle insurance (111) 105 - (216)
Total auto insurance 21,234 (111) 830 725 (1,666)
Skupaj 32,952 (774) 2,045 725 (3,544)
The two tables above show the effect of claims listed bellow, on the profit or loss reported in 2008 and 2009 having actual
reinsurance protection in 2008 and 2009:
- Fire loss in the amount of EUR 800,000, which was the subject of quota and Fire Risk XL reinsurance.
- Installation loss in the amount of EUR 8,000,000, which was the subject of surplus (95.00%), quota and technical
Risk XL reinsurance.
- Loss as a result of storms in the amount of EUR 5,652,000 where the smaller portion was reinsured, while the
remaining portion was covered under quota and property Cat XL reinsurance serving to provide coverage in case of
catastrophic losses.
- Claims from motor vehicle liability insurance in the amount of EUR 250,000, 750,000, 1,500,000, 3,000,000 and
15,000,000.
Note: as regards losses under motor vehicle liability, the assumption made is to retain 50% of simulated losses in provisions
for claims, whereas for all other simulated losses we have assumed making payments over the course of the year.
124
The Group KD Group Annual Report 2009
Notes to Consolidated Financial Statements as at and for the year ended 31 December 2009
As already mentioned, in 2009 we increased our own shares for motor insurance and insurance against the risk of natural
disasters, which directly affects the reduced volume of reinsurance coverage compared to the contract year 2008. Loss
events in the two years are comparable since in both years we recorded more loss events due to storms and an equal
number of major automobile liability claims. In contract year 2008, the above claims would cause decrease in the Group’s
profit of EUR 3,679 thousand, and in 2009, EUR 4,003 thousand.
5.2 Financial risks
The Group is exposed to financial risks through its financial assets and liabilities, reinsurance receivables and insurance
liabilities. Financial risks are risks that, due to changes in the capital markets and ratings of the Group’s clients, the inflows will
not be sufficient to cover the outflows. The most significant components of this financial risk are liquidity risk, credit risk and
market risk; the Group is exposed to the risks of changes in interest rates, securities market prices and currency rates.
Liquidity risk is the risk that the Group may be unable to repay all its liabilities, including potential liabilities, without threat to its
normal activities. The Group maintains capital adequacy with an adequate amount of capital in order to be able to ensure
liquidity at any moment and so that it is sustainably able to meet its obligations (solvency).
The main source of credit risk for the Group stems from the insurance segment and involves investments and reinsurance
risks. This involves the risk that the counterparty will be unable to pay the amounts due at maturity.
Market risks arise particularly in the investment of assets, where there is the potential that expectations regarding the value of
investments are not met or are not met entirely. The risk of unfavourable changes in investment values can be the
consequence of foreign exchange rate changes, as well as changes in interest rates or securities prices.
The Group manages and controls the risks to which it is exposed by constantly monitoring cash flows and ensuring that it
always has enough liquid assets at its disposal to settle its liabilities, by investing its assets in a manner which ensures stable
long-term returns which exceed the amount of returns on insurance liabilities, by matching the terms of financial assets
against financial liabilities, and by ensuring the adequacy of financial assets.
Currency risk is less important for the Group because of ERM2 and adoption of the euro in 2007.
125
The Group KD Group Annual Report 2009
Notes to Consolidated Financial Statements as at and for the year ended 31 December 2009
Analysis of assets and liabilities for financial risk management
Life insurance contracts with
DPF Short-term Insurance contracts
Property
insurance
Financial life contracts excl.
Life insurance insurance health Health
contracts with contracts with insurance insurance Other assets
(in EUR) DPF DPF contracts contracts and liabilities Total
ASSETS
31.12.2009
Debt securities 58,784,677 13,598,069 76,702,831 10,856,640 13,705,428 173,647,644
At fair value through profit or loss: 2,893,956 1,011,598 13,643,600 716,489 5,443,843 23,709,486
- listed 2,893,956 982,260 13,376,584 644,981 5,182,406 23,080,187
- non-listed - - - - 261,437 261,437
- government bonds - 29,338 267,016 71,508 - 367,862
Available for sale 43,798,880 10,818,497 63,059,231 9,500,444 4,465,822 131,642,873
- listed 5,444,197 1,162,138 24,124,443 219,436 3,713,867 34,664,081
- non-listed 539,020 - - - - 539,020
- government bonds 37,815,663 9,656,358 38,934,788 9,281,008 751,955 96,439,772
Held to maturity 12,091,841 1,767,974 - 639,707 3,795,763 18,295,285
- listed 5,269,304 262,356 - - 3,748,351 9,280,011
- non-listed 417,720 - - - - 417,720
- government bonds 6,404,817 1,505,618 - 639,707 47,412 8,597,554
Equity securities 7,332,432 1,395,093 30,600,202 2,156,321 38,539,505 80,023,553
At fair value through profit or loss: 2,625,977 340,631 7,535,539 29,766 3,487,232 14,019,145
- listed 2,625,977 340,631 7,535,539 29,766 3,487,232 14,019,145
- non-listed - - - - - -
Available for sale 4,706,455 1,054,462 23,064,663 2,126,555 35,052,273 66,004,408
- listed 3,413,169 711,132 19,198,800 2,029,231 17,318,012 42,670,344
- non-listed 1,293,286 343,330 3,865,863 97,324 17,734,261 23,334,064
Impairment of financial assets (1,135,123) (683) (2,344,019) - (8,245,862) (11,725,687)
Investment in associates - - - - 52,308,751 52,308,751
Loans and receivables 14,856,259 2,752,938 47,379,674 19,408,024 73,425,463 157,822,358
Loans and deposits 10,484,706 1,651,268 9,540,870 1,829,181 67,055,722 90,561,747
Insurance receivables 595,883 128,585 29,455,047 11,736,545 603,317 42,519,377
Other receivables 3,775,669 973,086 8,383,757 5,842,298 5,766,424 24,741,234
Investment properties 3,915,504 1,081,744 17,411,187 108,567 7,296,538 29,813,540
Reinsurance assets 199,221 18,768 19,231,019 - - 19,449,008
Cash and cash equivalents 1,709,807 292,344 12,736,818 831,703 24,732,502 40,303,174
Other assets 366,577 37,933 24,980,961 950,993 123,731,268 150,067,732
Total assets 86,029,354 19,176,205 226,698,673 34,312,248 325,493,593 691,710,073
LIABILITIES
Insurance contracts 8,604,775 - 194,962,683 16,400,337 - 219,967,795
Non-current liabilities 2,231,432 - 71,881,134 145,177 - 74,257,743
Current liabilities 6,373,343 - 123,081,549 16,255,160 - 145,710,052
Insurance contracts with DPF 76,130,189 - - - - 76,130,189
Non-current liabilities 76,130,189 - - - - 76,130,189
Current liabilities - - - - - -
Investment contracts with DPF - 17,703,254 - - - 17,703,254
Non-current liabilities - 17,654,644 - - - 17,654,644
Current liabilities - 48,610 - - - 48,610
Borrowings - - - - 196,132,185 196,132,185
Other liabilities 966,404 232,165 18,367,566 6,402,584 19,857,435 45,826,154
Total liabilities 85,701,368 17,935,419 213,330,249 22,802,921 215,989,620 555,759,577
126
The Group KD Group Annual Report 2009
Notes to Consolidated Financial Statements as at and for the year ended 31 December 2009
Life insurance contracts with
DPF Short-term Insurance contracts
Property
insurance
Financial life contracts excl.
Life insurance insurance health Health
contracts with contracts with insurance insurance Other assets
(in EUR) DPF DPF contracts contracts and liabilities Total
ASSETS
31 December 2008
Debt securities 47,427,174 13,018,327 79,035,741 6,471,557 2,190,106 148,142,905
At fair value through profit or loss: 3,235,192 947,476 14,383,689 859,092 236,536 19,661,985
- listed 3,235,192 911,209 14,016,581 762,310 - 18,925,292
- non-listed - - - - 236,536 236,536
- government bonds - 36,267 367,108 96,782 - 500,157
Available for sale 37,276,479 12,070,851 64,652,052 5,612,465 1,024,365 120,636,211
- listed 4,542,964 1,976,484 24,888,641 348,589 322,534 32,079,212
- non-listed - - - - - -
- government bonds 32,733,514 10,094,367 39,763,411 5,263,876 701,831 88,556,999
Held to maturity 6,915,504 - - - 929,205 7,844,709
- listed 5,380,629 - - - 889,937 6,270,566
- non-listed 427,282 - - - - 427,282
- government bonds 1,107,593 - - - 39,268 1,146,861
Equity securities 12,423,520 2,778,667 50,604,549 2,545,354 41,966,984 110,319,073
At fair value through profit or loss: 2,645,320 829,200 5,272,758 55,229 7,046,189 15,848,695
- listed 2,645,320 829,200 5,272,758 55,229 7,046,189 15,848,695
- non-listed - - - - - -
Available for sale 9,778,200 1,949,467 45,331,791 2,490,125 34,920,795 94,470,378
- listed 8,960,620 1,796,599 42,083,652 2,490,125 10,002,150 65,333,146
- non-listed 817,580 152,868 3,248,139 - 24,918,645 29,137,232
Impairment of financial assets (4,159,003) (839,478) (15,215,132) (173,525) (7,244,586) (27,631,724)
Investment in associates - - - - 81,077,284 81,077,284
Loans and receivables 10,049,123 1,308,200 57,024,063 18,835,288 82,855,467 170,072,141
Loans and deposits 9,220,578 1,025,976 16,674,165 5,516,979 64,680,183 97,117,881
Insurance receivables 565,197 135,015 32,567,063 11,497,024 48,430 44,812,729
Other receivables 263,348 147,209 7,782,835 1,821,285 18,126,854 28,141,531
Investment properties 3,818,485 1,281,091 17,474,217 - 6,133,794 28,707,587
Reinsurance assets 152,256 21,726 17,188,721 - - 17,362,703
Cash and cash equivalents 1,172,517 76,173 3,976,328 187,382 24,887,904 30,300,304
Other assets 815,338 308,069 25,902,068 5,754,394 112,920,491 145,700,360
Total assets 71,699,410 17,952,775 235,990,554 33,620,450 344,787,444 704,050,634
LIABILITIES
Insurance contracts 7,636,505 384,788 186,817,551 15,906,377 - 210,745,221
Non-current liabilities 2,496,872 70,051 66,450,674 169,446 - 69,187,043
Current liabilities 5,139,633 314,737 120,366,877 15,736,931 - 141,558,178
Insurance contracts with DPF 57,640,231 9,295,497 - - - 66,935,728
Non-current liabilities 57,640,231 9,295,497 - - - 66,935,728
Current liabilities - - - - - -
Investment contracts with DPF 9,295,051 7,035,113 - - - 16,330,164
Non-current liabilities 9,252,317 7,020,079 - - - 16,272,396
Current liabilities 42,735 15,033 - - - 57,768
Borrowings - - 8,000,000 - 173,908,599 181,908,599
Other liabilities 435,138 317,646 14,801,873 7,392,230 21,328,173 44,275,059
Total liabilities 75,006,924 17,033,044 209,619,424 23,298,607 195,236,772 520,194,771
127
The Group KD Group Annual Report 2009
Notes to Consolidated Financial Statements as at and for the year ended 31 December 2009
5.2.1 Liquidity risk
Liquidity risk is the risk that cash may not be available to pay obligations due at a reasonable cost.
The Group is exposed to liquidity risk in particular with regards to the insurance liabilities (claims) and the contractual
obligations pertaining to the acquisition of financial instruments (notably the acquisitions of companies) and the servicing of
current liabilities from financial instruments.
The liquidity requirements in the field of financial intermediation are specifically regulated by the law, where the most
important area for the Group is insurance where it strives to maintain the volume of liquidity in accordance with the regulatory
requirements.
Exposure to liquidity risk is reflected in the acceptance of insurance risk and the Group’s ability to meet its contractual
obligations from existing insurance contracts and liabilities related to the insurer’s day-to-day operations.
Liquidity risk stems from an imbalance in inflows and outflows and manifests itself in the potential that the Group, despite
having adequate financial assets, would find itself in the position of having to cash in its investments under less favourable
conditions (e.g. lower price, higher transaction costs) in order to meet its contractual obligations, which would result in a lower
return on investments.
The Group manages its liquidity risk through:
• maintaining a suitable structure of investments;
• diversifying the investment portfolio;
• planning future cash flows, ensuring a suitable volume of cash flows from operating and investing activities (payout of
interest and principal) to cover future foreseeable liabilities;
• providing an adequate volume of high liquidity investments which are readily convertible without loss in order to cover
future unforeseeable liabilities.
The Group is exposed to interest rate risk via financial assets and liabilities, reinsured receivables and insured liabilities. Due
to the nature of its investments and liabilities, the Group particularly faces the risk of changed interest rates.
The overview of liquidity risk management is presented below, showing maturity of assets according to contractual cash flows,
which are compared with the expected cash flows of insurance and financial contracts.
Contractual cash flows for debt securities are calculated using the data of the issuers. The amortisation schedule and coupon
rate at the date of calculation is used. For each time interval, the future cash flows (principal and coupon rate) are considered
according to the situation of the debt securities portfolio.
For the purpose of presenting cash flows of life insurance contracts with DPF and unit-linked life insurance, all the cash flows
of future payments of claims and costs arising from life insurance contracts effective at 31 December 2009 were generated.
For the purpose of presenting cash flows of financial contracts, all the cash flows of future payments of claims and costs
arising from financial contracts effective at 31 December 2009 were generated..
Expected cash flows of property insurance and health insurance represent an assessment of payments for claims (which
have already been incurred), including costs and the release of liability from unearned premiums and provisions.
Own assets of the Group are not intended for covering liabilities from insurance and financial contracts, and this is the reason
the mean duration of assets is not presented.
128
The Group KD Group Annual Report 2009
Notes to Consolidated Financial Statements as at and for the year ended 31 December 2009
Overview of maturity of insurance liabilities in 2009
Carrying No stated
Expected cash flows (undiscounted)
amount maturity
More than 15
(in EUR) 0-1 year 1 – 5 years 5 - 10 years 10 - 15 years years
Liabilities
Insurance contracts 219,967,795 - 146,060,298 54,871,726 53,269,051 37,558,357 94,793,389
Insurance contracts with DPF 76,130,189 - 6,659,497 30,419,358 40,167,394 31,899,258 68,674,106
Investment contracts with DPF 17,703,254 - 1,542,269 7,157,261 10,365,688 9,489,577 27,521,996
Debt securities (issued) - - - - - - -
Total liabilities 313,801,238 - 154,262,064 92,448,345 103,802,133 78,947,192 190,989,491
Overview of maturity of insurance liabilities in 2008
Expected cash flows (undiscounted)
Carrying No stated More than 15
(in EUR) amount maturity 0-1 year 1 – 5 years 5 - 10 years 10 - 15 years years
Liabilities
Insurance contracts 210,745,221 - 137,836,517 49,476,994 18,052,930 5,378,780 -
Insurance contracts with DPF 66,935,728 - 5,288,051 51,946,852 30,255,563 25,831,111 57,406,862
Investment contracts with DPF 16,330,164 - 1,457,040 6,645,794 10,255,146 9,309,026 28,586,415
Debt securities (issued) - - - - - - -
Total liabilities 294,011,113 - 144,581,608 108,069,640 58,563,639 40,518,917 85,993,277
Overview of maturity of liabilities related to own liabilities in 2009
Contractual cash flows (undiscounted)
Carrying No stated More than 5
(in EUR) amount maturity 0-1 year 1-3 years 3-5 years years
Liabilities
Debt securities (issued) 75,521,481 - 6,734,595 - - 68,856,966
Borrowings 119,184,048 2,637,944 106,903,679 7,176,040 10,550,510 3,528,729
Derivative financial instruments 1,426,656 - 279,981 1,146,675 - -
Trade and other payables 19,857,435 2,051,446 16,721,623 572,758 21,287 750,408
Total liabilities 215,989,620 4,689,390 130,639,878 8,895,473 10,571,797 73,136,103
Overview of maturity of liabilities related to own liabilities in 2008
Contractual cash flows (undiscounted)
Carrying No stated More than 5
(in EUR) amount maturity 0-1 year 1-3 years 3-5 years years
Liabilities
Debt securities (issued) 75,449,991 - 5,353,312 12,362,816 8,240,000 67,331,028
Borrowings 98,107,912 - 65,293,452 16,609,362 21,945,005 657,939
Derivative financial instruments 350,696 - 350,696 - - -
Trade and other payables 21,328,173 6,279,526 17,516,072 1,214,985 - 4,745
Total liabilities 195,236,772 6,279,526 88,513,532 30,187,163 30,185,005 67,993,712
129
The Group KD Group Annual Report 2009
Notes to Consolidated Financial Statements as at and for the year ended 31 December 2009
5.2.2 Credit risk
Credit risk is the consequence of an inability on the part of a contracting party to fully repay its obligations or overdue debts. In
terms of financial instruments included in investments, it is the risk that one party in a contract regulating the financial
instrument will cause the other party to incur financial loss due to a default on obligations as a result of a difference between
actual and contractually agreed fulfilment of obligations.
The Group manages its credit risk exposure by introducing further limits on individual amounts and on already specified
amounts of maximum exposure of individual securities. In order to minimise the risk exposure, the Group checks analyses
and credit rating scores of issuers of securities. It also manages its credit risk exposure through investments in government-
issued securities, and low-risk securities. The procedures for checking the credit of foreign issuers of securities are based on
acquiring credit rating information from international firms such as Standard & Poor’s, Fitch-IBCA and Moody’s.
Issuers of securities in Slovenia do not have ratings, but the insurance part of the Group has the highest concentration of
investments in debt securities, bank and government bonds. The credit risk of investment coupons and equity securities is
controlled by diversification of investments.
Procedures of verifying credit ratings are based on obtaining and reviewing publicly accessible data on the current financial
status of the issuer of financial instruments and its future solvency. The credit rating of domestic issuers of financial
instruments is determined by the Group itself. In checking the issuer’s credit using its own sources, the Group checks future
solvency and in particular the issuer’s adequacy of expected future cash flows from regular activities, offset against the
outflows for settlement of future liabilities.
In terms of of reinsurance, the same as for financial asset investment, credit risk management procedures relate to verifying
the reinsurer’s credit rating. In accordance with the credit risk management strategy , reinsurance-related liabilities are
reinsured by prime-grade reinsurers. This does not, however, discharge the Group’s liability as primary insurer. If a reinsurer
fails to pay a claim for any reason, the Group remains liable for the payment to the policyholder. The creditworthiness of
reinsurers is considered on an annual basis by reviewing their financial strength prior to finalisation of any contract.
The Group restructures credit risk by establishing limits according to counterparty and also according to territory and industry.
These risks change regularly.
Maximum credit risk at 31 December 2009 and 31 December 2008
(in EUR) AAA-A BBB-B Without rating Total
31.12.2009 31.12.2008 31.12.2009 31.12.2008 31.12.2009 31.12.2008 31.12.2009 31.12.2008
Debt securities 115,475,032 104,386,884 19,168,798 6,556,381 43,083,795 37,199,640 177,727,625 148,142,905
At fair value through profit or
loss 816,754 1,399,763 3,576,692 1,000,419 19,316,040 17,261,803 23,709,486 19,661,985
Available-for-sale 107,886,926 100,486,158 10,611,753 3,990,928 17,224,175 16,159,125 135,722,854 120,636,211
Hel-to-maturity 6,771,352 2,500,963 4,980,353 1,565,034 6,543,580 3,778,712 18,295,285 7,844,709
Loans and receivables 3,147,557 - 9,860,032 - 148,794,675 181,421,807 161,802,264 181,421,807
Loans and deposits 3,147,557 - 9,860,032 - 79,010,288 97,783,106 92,017,877 97,783,106
Insurance receivables - - - - 33,377,192 35,709,836 33,377,192 35,709,836
Recourse receivables - - - - 10,713,323 11,768,663 10,713,323 11,768,663
Other receivables - - - - 25,693,872 36,160,202 25,693,872 36,160,202
Reinsurance assets - - - - 19,449,008 17,362,703 19,449,008 17,362,703
Cash and cash equivalents 491,776 5,745 46,620 70,932 40,191,676 31,228,515 40,730,072 31,305,192
Total assets 119,114,365 104,392,629 29,075,450 6,627,313 251,519,154 267,212,665 399,708,969 378,232,607
130
The Group KD Group Annual Report 2009
Notes to Consolidated Financial Statements as at and for the year ended 31 December 2009
Recourse receivables – recourse claims and assets acquired in the course of settlement of claims
The Group may sell items damaged in insurance cases, which it acquires in the course of resolving claims. The net
recoverable value of damaged items in claims which the Group manages to sell is recognised as revenue on the transaction
date (sale of the damaged item).
With the payment of claims, the rights in relation to those responsible for the damage are also transferred from the
policyholder to the Group (subrogation). The Group exercises that right through a recourse claim of partial or entire payment
of the insurance amount. In the event the insured person of compulsory liability insurance loses his or her rights (intoxication,
etc.) the Group demands recourse from the policyholder or the person responsible for the damage of the entire or partial
amount of the paid claims. Exercised recourse claims are recognised as insurance revenue. Expected recourse amounts are
also included in the calculation of liabilities for claims.
Recourse receivables are recorded separately, as exercised and unexercised, whereas the unexercised recourse receivables
are kept in off-balance sheet records and no impairment is recognised with regard to them.
Exercised recourse receivables are recorded separately as receivables insured by mortgage and other recourse receivables,
which is the basis for impairment calculation. Impairment of exercised recourse receivables and receivables on redemption is
based on individual estimation of the financial situation and liquidity of the insurance policyholder. Liquidity of debtors and
other receivables, except deferred tax receivables, are assessed individually; the same is true for impairment calculation.
Loans
The Group approves loans to its subsidiaries and associates in order to take advantage of synergy effects. The Group can
raise loans under more advantageous conditions than subsidiaries and associates because of its financial power and
intensive cooperation with financial institutions. Loans are approved at the rate of interest prescried for loans to related
parties. Loans are not insured.
In some cases, loans are also approved to companies outside the Group if there exists a mutual interest for business
cooperation. These loans are not insured, and the interest rate is higher.
131
The Group KD Group Annual Report 2009
Notes to Consolidated Financial Statements as at and for the year ended 31 December 2009
Credit risk: Impairment of financial assets
Past due but not impaired Past due and impaired
Individually Collective
Neither past Total
due nor Up to 30 91-270 More than Gross Gross carrying
Assets (in EUR) impaired days 31-90 days days 271 days value Impairment value Impairment amount
31 December 2009
Debt securities 177,727,625 - - - - - - - - 177,727,625
Loans 80,337,544 - 463,004 - 11,283 335,222 (147,885) 11,046,488 (27,779) 92,017,877
Receivables 34,824,419 2,953,412 357,452 1,748,162 2,317,194 47,565,866 (35,109,703) 34,636,113 (19,508,528) 69,784,387
- insurance receivables 13,476,583 2,730,548 131,399 1,338,207 2,070,055 5,290,140 (4,312,420) 27,901,144 (15,248,464) 33,377,192
- recourse receivables - - - - - 24,403,068 (15,653,623) 5,302,790 (3,338,912) 10,713,323
- other receivables 21,347,836 222,864 226,053 409,955 247,139 17,872,658 (15,143,660) 1,432,179 (921,152) 25,693,872
Reinsurance assets 19,449,008 - - - - - - - - 19,449,008
TOTAL 312,338,596 2,953,412 820,456 1,748,162 2,328,477 47,901,088 (35,257,588) 45,682,601 (19,536,307) 358,978,897
31 December 2008
Debt securities 148,142,905 - - - - - - - - 148,142,905
Loans 84,695,005 2,992,383 1,029,788 8,911,613 154,317 431,757 (431,757) - - 97,783,106
Receivables 40,591,075 2,222,501 2,339,094 1,825,122 1,159,400 19,381,299 (15,772,647) 64,954,003 (33,061,146) 83,638,701
- insurance receivables 14,987,319 257,165 261,441 585,918 40,848 2,093,044 (1,472,304) 32,614,344 (13,657,939) 35,709,836
- recourse receivables - - - - - - - 29,639,895 (17,871,232) 11,768,663
- other receivables 25,603,756 1,965,336 2,077,653 1,239,204 1,118,552 17,288,255 (14,300,343) 2,699,764 (1,531,975) 36,160,202
Reinsurance assets 17,278,319 - - - - - - - - 17,362,703
TOTAL 290,707,304 5,214,884 3,368,882 10,736,735 1,398,101 19,813,056 (16,204,404) 64,954,003 (33,061,146) 346,927,415
The table also includes investments contracts.
132
The Group KD Group Annual Report 2009
Notes to Consolidated Financial Statements as at and for the year ended 31 December 2009
5.2.3 Sensitivity analysis
Sensitivity analysis – parameters
Methods and assumptions used in preparing the sensitivity analysis for the types of market risks, which the Group is exposed.
Sensitivity factor Description of sensitivity factor applied
The impact of a change in market interest rates of ± 50 bp (i.e.: what is the impact
on profit and equity if the market interest rate changes by the 50 basis points). A
change of ± 50 bp represents a change of more than 1%, according to the change
Changes in interest rates in interest rates in the past year.
The impact of changes in market prices of financial assets are reflected in a
change in share price, the price of ID-share prices of structured securities and the
Changes in share prices price of mutual funds at 31 December 2008 of ± 15%.
The impact of changes in revenue from commissions from a decrease of
Changes in commissions investments of 15%.
The table below summarises the results of the sensitivity analysis of a change in interest rates, a change in prices of equity
securities and changes in the level of commission for the management of which the impact on equity excludes the impact on
the profit and loss account. Because of changes in financial markets in the past year, the Group has changed the
assumptions of sensitivity analysis to reflect the changes in market conditions.
2009
(in EUR) Impact on profit before tax Impact on equity
Change in interest rate by +50 bp (513,171) (3,005,506)
Change in interest rate by -50 bp 530,451 3,350,363
+15% change in the price of shares 2,154,583 9,230,139
-15% change in the price of shares (2,154,583) (9,230,139)
Change in commissions (investment +15%) 1,627,363 -
Change in commissions (investment -15%) (1,627,363) -
2008
(in EUR) Impact on profit before tax Impact on equity
Change in interest rate by +50 bp (925,475) (6,071,260)
Change in interest rate by -50 bp 954,195 6,642,070
+15% change in the price of shares 3,962,174 21,546,416
-15% change in the price of shares (3,962,174) (21,546,416)
Change in commissions (investment +15%) 3,602,703 -
Change in commissions (investment -15%) (3,602,703) -
133
The Group KD Group Annual Report 2009
Notes to Consolidated Financial Statements as at and for the year ended 31 December 2009
5.2.4 Currency risk
The Group’s currency risk is not considered to be significant due to the fact that Slovenia is in the ERM2 system with fixed
foreign currency rates, and the euro was introduced in Slovenia on 1 January 2007.
The table below summarises the Group’s exposure to foreign currency exchange rate risk at 31 December. Included in the
table are the Group’s financial assets and financial and insurance liabilities at carrying amounts, categorised by currency.
31.12.2009
(in EUR) EUR Other Total
Assets
Financial assets at fair value through profit or loss 35,655,676 2,417,696 38,073,372
- Equity securities 13,118,979 1,244,907 14,363,886
- Debt securities 22,536,697 1,172,789 23,709,486
Available for sale 179,454,315 10,606,908 190,061,223
- Equity securities 44,402,232 9,936,137 54,338,369
- Debt securities 135,052,083 670,771 135,722,854
Held to maturity 17,286,402 1,008,883 18,295,285
- Debt securities 17,286,402 1,008,883 18,295,285
Investment property 29,813,540 - 29,813,540
Loans and receivables 153,711,798 8,090,466 161,802,264
Investments in loans and other financial receivables 87,312,526 4,706,468 92,018,994
Insurance receivables and other receivables 56,292,858 1,588,751 57,881,609
Accruals and DAC 10,106,414 1,795,247 11,901,661
Reinsurance assets 19,427,641 21,367 19,449,008
Cash and cash equivalents 30,509,894 10,220,178 40,730,072
Total assets 465,859,266 32,365,498 498,224,764
Liabilities
Debt securities (issued) 75,521,481 - 75,521,481
Loans 118,904,123 279,925 119,184,048
Derivative financial instruments 1,426,656 - 1,426,656
Insurance contracts 212,991,566 6,976,229 219,967,795
Insurance contracts with DPF 76,059,996 70,193 76,130,189
Investment contracts with DPF 17,692,461 10,793 17,703,254
Total liabilities 502,596,283 7,337,140 509,933,423
134
The Group KD Group Annual Report 2009
Notes to Consolidated Financial Statements as at and for the year ended 31 December 2009
31.12.2008
(in EUR) EUR Other Total
Assets
Financial assets at fair value through profit or loss 31,509,851 4,000,829 35,510,680
- Equity securities 11,847,866 4,000,829 15,848,695
- Debt securities 19,661,985 - 19,661,985
Available for sale 183,734,682 3,740,183 187,474,865
- Equity securities 64,006,977 2,831,677 66,838,654
- Debt securities 119,727,705 908,506 120,636,211
Held to maturity 6,996,697 848,012 7,844,709
- Debt securities 6,996,697 848,012 7,844,709
Investment property 28,707,587 - 28,707,587
Loans and receivables 166,429,798 14,992,009 181,421,807
Investments in loans and other financial receivables 86,251,324 11,534,356 97,785,680
Insurance receivables and other receivables 66,661,969 3,186,158 69,848,127
Accruals and DAC 13,516,505 271,495 13,788,000
Reinsurance assets 17,360,568 2,135 17,362,703
Cash and cash equivalents 26,061,591 5,243,601 31,305,192
Total assets 460,800,774 28,826,769 489,627,543
Liabilities
Debt securities (issued) 75,449,991 - 75,449,991
Borrowings 106,027,899 80,013 106,107,912
Derivative financial instruments 350,696 - 350,696
Insurance contracts 207,727,450 3,017,771 210,745,221
Insurance contracts with DPF 66,899,135 36,593 66,935,728
Investment contracts with DPF 16,330,164 - 16,330,164
Total liabilities 472,785,335 3,134,377 475,919,712
5.3 Operational risk
Operational risks are risks related to errors in the functioning of business processes, information technology, organisation and
similar areas.
The operational risks of the Group are managed in the subsidiaries by monitoring the weaknesses and opportunities of their
businesses and by controlling the business processes. The operational risk management is based on the Group’s strategic
and companies’ operational objectives.
The Group manages operational risks by introducing ISO standards at the level of the Group and at its individual members, by
which the Group wants to standardise the business processes. The Group uses standardised and uniform software in the
area of accounting and investments. Operational risks are reduced also with uniform system of annual planning and interim
and annual reporting.
5.4 General business risk
General business risks are related to the Group’s operations in the environment, such as the economic environment,
legislation and similar, on which the Group has no direct impact.
Such risks are quite difficult to measure or model. In order to manage such risks, the Group regularly monitors legislation
through its technical services, as well as developments on the capital market and macroeconomic parameters of the markets
in which it is present.
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The Group KD Group Annual Report 2009
Notes to Consolidated Financial Statements as at and for the year ended 31 December 2009
5.5 Capital management
Board of Directors takes a decision on maintenance of significant (large) capital scope to ensure the confidence of all
participants and development of KD Group. As one of the strategic indicators, the Group defines return on equity as the ratio
between net profit for the year of the majority owner and the average value of the majority owner’s equity. The Group seeks to
keep a balance between large returns which can be reached by higher indebtedness, and the advantages and safety of a
powerful capital structure. Return on equity is one of the strategic indicators of the Group's annual plan, which is adopted on
the basis of monitoring developments in the environment and on maintaining an optimal capital structure. Return on equity is
calculated as the ratio between net profit / loss generated and the average value of the total equity, less the value of earnings.
Pursuant to the decision of the General Meeting of Shareholders, the parent company KD Group d. d. has established its own
share fund. On 31 December 2009 there were 62,201 ordinary shares KDHR, which accounts for 2.11% of issued capital and
51,306 preference shares KDHP, which represents 1.74% of issued capital.
The investment plan, optimal capital structure policy, expectations and interests of shareholders are the basis for
development of the dividend policy. The entity distributes dividends once a year. The Board of Directors of the parent
company takes a decision about the amount of proposed dividends. Dividends are distributed from the retained earnings of
the parent company, which is regulated in compliance with valid regulations in Slovenia; the decision about dividend
distribution is taken by the General Meeting of Shareholders.
KD Group d. d. has no specific aims about ownership by employees and has no share option programme. In the Group there
were no changes in the management of capital in 2009.
The parent company is not subject to capital requirements which could be set by the regulatory authority.
For an entity that has subsidiaries in the financial and insurance segment, capital requirements are provided by the regulatory
authority. The management of the entities provides the proper amount of capital (capital adequacy) according to the scope
and type of operations which are managed by the management and according to the risks to which they are exposed.
5.6 Fair value of financial assets and liabilities
Fair value is the amount for which an asset could be exchanged or a liability settled between knowledgeable, willing parties in
an arm’s length transaction.
The Group establishes the fair value of financial assets in the following way:
- The fair value of investments in equity instruments that have a quoted market price on an active market is determined as
the product of the number of units of the instrument and its quoted market price.
- If there is no active market for the financial instruments, methods of assessing the fair value of a financial instrument are
used. Valuation techniques include using recent arm’s length market transactions between knowledgeable, willing
parties, if available, reference to the current fair value of another instrument that is substantially the same, and
discounted cash flow analysis. The Group has developed a model for assessing the fair value of non-listed equity
instruments; its appropriateness was assessed by an independent qualified expert. Using this model, the fair values of
significant financial investments in non-listed companies are estimated once a year on the basis of data available.
- The fair value of loans and deposits represents the discounted amount of estimated future cash flows expected to be
received. Expected cash flows are discounted at current market rates to determine fair value.
- The estimated fair value of borrowings not quoted on an active market is based on discounted cash flows using current
market rates. The aggregate fair value of quoted debt securities is calculated based on quoted market prices.
- For current receivables and liabilities, it is assumed their carrying value reflects their fair value.
- For a contract containing a discretionary participation feature, the fair value cannot be measured reliably.
The following table summarises the carrying amounts and fair values of those financial assets and liabilities not presented on
the Group’s balance sheet at their fair value. Bid prices are used to estimate fair values of assets, whereas offer prices are
applied to liabilities.
136
The Group KD Group Annual Report 2009
Notes to Consolidated Financial Statements as at and for the year ended 31 December 2009
(in EUR) Carrying value Fair value
31. 12. 2009 31. 12. 2008 31. 12. 2009 31. 12. 2008
Financial assets
Investment securities (held to maturity) 18,295,285 7,844,709 18,295,285 7,844,709
Loans and bank deposits 92,017,877 97,785,680 92,048,655 97,748,361
110,313,162 105,630,389 110,343,340 105,593,070
Financial liabilities
Borrowings 101,642,448 106,107,912 101,491,404 106,977,118
Bonds issued 75,521,481 75,449,991 72,623,944 74,573,007
177,163,929 181,557,903 174,115,348 181,550,125
Fair value hierarchy
In 2009, the disclosures of financial assets and liabilities measured at fair value were amended by disclosures serving to
disclose the financial assets and financial liabilities measured at fair value also by the source of valuation by applying a three-
level hierarchy for each and every type of financial instruments. The hierarchy is divided into three levels and the fair value of
financial assets is shown below:
- Level 1 includes the assets where fair value is determined entirely on the basis of prices quoted on an active market
for similar instruments.
- Level 2 includes the assets where fair value is determined on the basis of the valuation models where the inputs are
obtained from publicly accessible market data (e.g.: market interest rates).
- Level 3 includes the assets where fair value is determined on the basis of the valuation models where inputs that
cannot be based on observable market are taken into account.
Financial assets and liabilities by fair value hierarchy in 2009
(in EUR)
Total fair
value Level 1 Level 2 Level 3
Assets measured at fair value
Financial assets at fair value through profit or loss
Equity securities 14,363,886 13,274,974 1,088,912 -
Debt securities 23,709,486 23,709,486 - -
Financial assets, available for sale
Equity securities 50,395,798 42,670,344 4,470,831 3,254,623
Debt securities 135,722,854 134,916,334 806,520 -
Derivative financial instruments
Derivative financial instruments for trading 1,146,675 - 1,146,675 -
Liabilities measured at fair value
Derivative financial instruments
Derivative financial instruments for hedge accounting 1,426,656 - 1,426,656 -
The valuation of the investments made in equity securities classified at Level 3 was carried out on the basis of the
assessment made for all equity capital and by using the discounted future net cash flows method . The method was based on
the key assumptions set forth below:
− The estimated free cash flows until 2018,
− The leverage rate of the insurance company, and
− The discount for the lack of marketability.
The effect of the modified assumptions would not have any material effect on the financial statements.
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The Group KD Group Annual Report 2008
Notes to Consolidated Financial Statements as at and for the year ended 31 December 2008
Changes in Level 3 Instruments for the year ended 31. 12. 2009
Total gains / Total gains or losses
(loss) recorded in for the period included
At 1 Total realised Total unrealised other Transfers from At 31 in profit or loss for
January gains / (loss) in gains / (loss) in comprehensive level 1 and December assets / liabilities held
Assets measured at fair value 2009 income statement income statement income Purchases Sales level 2 2009 at 31 December 2009
Financial assets, available for sale
Equity securities 1,324,996 - - (111,446) 2,041,073 - - 3,254,623 (111,446)
Gains or losses (realised and unrealised) included in profit or loss for the period are presented in the consolidated income statement as follows:
2009
Fair values gains and
(in EUR) Realised gains losses Total
Total gains or losses included in profit or loss for the
period - - -
Total gains or losses included in profit and loss for the
period for assets held at the end of the reporting period - (111,446) (111,446)
There have been no transfers from Level 2 to Level 1 in 2009.
138
The Group KD Group Annual Report 2009
Notes to Consolidated Financial Statements as at and for the year ended 31 December 2009
6. Segment reporting
The Group’s main activities, i.e. business segments, are the following:
- Property insurance
- Life insurance
- Health insurance
- Financial operations (asset management and other financial operations)
- Banking
- Other (real estate/immoveable property, publishing, etc.)
As at 31 December 2009, the Group operated in Slovenia and the following other countries: Bosnia and Herzegovina,
Bulgaria, Croatia, Cyprus, Netherlands, Slovakia, Romania, Serbia, Ukraine, Uzbekistan and United States.
6.1. Primary reporting format – business segments
6.1.1 Performance by business segment
The segment results for the year ended 31 December 2009 are as follows:
(in EUR) 2009
Property Health Financial
insurance Life insurance insurance operations Banking Other Group
Total gross segment
sales 143,882,060 99,053,668 100,150,423 11,672,110 1,384,704 8,108,462 364,251,427
Inter-segment sales (1,146,097) (8,978,712) - (290,641) (698,467) (537,010) (11,650,927)
Sales 142,735,963 90,074,956 100,150,423 11,381,469 686,237 7,571,452 352,600,500
Interest income 6,061,771 4,518,695 907,032 1,797,346 893,823 73,063 14,251,730
Operating profit/segment
result 3,747,551 (8,363,340) 4,792,700 (13,852,708) (3,678,134) (1,078,554) (18,432,485)
Finance costs – net 10,177 (1,949,083) (1,146) (7,245,351) (275,565) (102,946) (9,563,914)
Share of profit of
associates - - - (23,426,946) - - (23,426,946)
Profit before income tax 3,757,728 (10,312,423) 4,791,554 (44,525,005) (3,953,699) (1,181,500) (51,423,345)
Income tax expense (1,577,759) (116,929) (983,534) 9,528,853 535,654 (186,378) 7,199,907
Profit or loss for the
year 2,179,969 (10,429,352) 3,808,020 (34,996,152) (3,418,045) (1,367,878) (44,223,438)
In Finance costs – net are included also net foreign exchange differences.
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The Group KD Group Annual Report 2009
Notes to Consolidated Financial Statements as at and for the year ended 31 December 2009
The segment results for the year ended 31 December 2008 are as follows:
(in EUR) 2008
Property Health Financial
insurance Life insurance insurance operations Banking Other Group
Total gross segment 138,623,094 105,493,633 97,661,626 17,949,301 13,351,149 8,302,783 381,381,586
l
Inter-segment sales (791,412) (15,984,763) (1,700,416) (1,855,199) (1,223,646) (509,399) (22,064,835)
Sales 137,831,682 89,508,870 95,961,210 16,094,102 12,127,503 7,793,384 359,316,751
Interest income 6,593,723 4,749,744 784,529 2,553,466 27,722 115,211 14,824,395
Operating
profit/segment result (14,203,819) (21,231,013) 2,051,933 (17,917,372) 1,590,701 (149,818) (49,859,388)
Finance costs – net (638,797) 549,213 (453) (6,352,067) (1,202,716) (378,646) (8,023,466)
Share of profit of
associates (3,060,764) (1,043,773) - (23,302,843) - 351 (27,407,029)
Profit before income
tax (17,903,380) (21,725,573) 2,051,480 (47,572,281) 387,985 (528,113) (85,289,882)
Income tax expense 4,188,301 764,399 (383,029) 4,176,332 (498,048) 37,944 8,285,899
Profit or loss for the
year (13,715,079) (20,961,174) 1,668,451 (43,395,949) (110,063) (490,169) (77,003,983)
The costs are allocated to segments as they originally occur in the operations of each business segment and as they are
reported by the subsidiaries which are included in the relevant segment.
Other segment items included in the income statement for the year ended 31 December 2009 are as follows:
(in EUR) 2009
Property Life Health Financial
Banking Other Group
insurance insurance insurance operations
Depreciation and amortisation (1.935.032) (1.379.119) (725.141) (1.334.244) (394.924) (305.027) (6.073.487)
Impairment of trade receivables (3.590.270) (299.753) (578.575) (28.897) - (30.909) (4.528.404)
Other segment items included in the income statement for the year ended 31 December 2008 are as follows:
(in EUR) 2008
Property Life Health Financial Cinema-
Other Group
insurance insurance insurance operations tography
Depreciation and amortisation (1,716,312) (1,222,365) (760,886) (1,221,236) (2,744,043) (258,530) (7,923,372)
Impairment of trade receivables (1,413,107) (542,711) (715,208) (39,165) - (35,652) (2,745,843)
Inter-segment transfers or transactions are entered into under the normal commercial terms and conditions that would also be
available to unrelated third parties.
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The Group KD Group Annual Report 2009
Notes to Consolidated Financial Statements as at and for the year ended 31 December 2009
The segment assets and liabilities at 31 December 2009 and for the year then ended are as follows:
(in EUR) 31.12.2009
Property Financial
Life insurance Health insurance
insurance operations Banking Other Group
Assets 241,077,576 291,570,746 39,973,724 161,513,881 46,751,286 14,588,780 795,475,993
Associates 2,718,849 599,722 - 47,953,517 342 1,036,321 52,308,751
Total assets 243,796,425 292,170,468 39,973,724 209,467,398 46,751,628 15,625,101 847,784,744
Liabilities 221,693,367 270,013,578 26,550,416 146,556,087 29,209,967 2,156,310 696,179,725
Financial liabilities 4,006,656 12,306,805 - 142,220,619 27,857,428 8,314,021 194,705,529
Capital expenditure 2,131,186 1,830,445 - 4,242,402 2,087,758 1,728,294 12,020,085
The segment assets and liabilities at 31 December 2008 and for the year then ended are as follows:
(in EUR) 31.12.2008
Property Life Health Financial Cinema-
Other Group
insurance insurance insurance operations tography
Assets 236,687,187 217,968,350 38,227,230 205,654,926 - 15,397,332 713,935,025
Associates 2,746,728 599,722 - 76,765,206 - 965,628 81,077,284
Total assets 239,433,915 218,568,072 38,227,230 282,420,132 - 16,362,960 795,012,309
Liabilities 218,849,191 190,222,994 28,755,316 157,264,233 - 5,975,190 601,066,924
Financial liabilities 12,016,352 9,848,863 - 152,059,632 - 7,633,056 181,557,903
Capital expenditure 2,855,958 3,750,267 69,634 15,709,725 - 618,275 23,003,859
Segment assets consist primarily of property, plant and equipment, intangible assets, inventories, financial assets, cash, and
operating and other receivables.
Segment liabilities comprise financial and operating liabilities. Internal transactions and balances with particular business
segments have been eliminated from the above amounts.
141
The Group KD Group Annual Report 2009
Notes to Consolidated Financial Statements as at and for the year ended 31 December 2009
6.2 Secondary reporting format - geographical segments
6.2.1 Performance by geographical segment
The Group’s business segments operate in three main geographical areas, even though they are managed on a worldwide
basis. The home country of the Group is Slovenia. The areas of operation are principally property insurance, life insurance,
health insurance, financial services (asset management and other financial operations), banking and other (real estate,
publishing, etc.).
The Group particularly operates in Slovenia, in EU countries and other countries of South Eastern Europe.
(in EUR) 2009 2008
Sales
Slovenia 339,558,426 351,113,529
Euro area 4,521,620 5,494,951
Other countries 8,520,454 2,708,271
352,600,500 359,316,751
(in EUR) 2009 2008
Total assets
Slovenia 715,832,730 665,026,087
Euro area 97,634,794 72,741,414
Other countries 34,317,220 57,244,808
847,784,744 795,012,309
(in EUR) 2009 2008
Associates
Slovenia 50,407,259 62,552,159
Euro area 1,028,403 2,266,559
Other countries 873,089 16,258,567
52,308,751 81,077,285
(in EUR) 2009 2008
Capital expenditure
Slovenia 11,105,850 13,604,941
Euro area 135,198 520,036
Other countries 779,037 10,531,904
12,020,085 24,656,881
(in EUR) 2009 2008
Analysis of sales by category
Revenue from the sales of goods 3,959,957 4,481,153
Revenue from services 348,640,543 365,725,185
352,600,500 370,206,338
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The Group KD Group Annual Report 2009
Notes to Consolidated Financial Statements as at and for the year ended 31 December 2009
7. Property, plant and equipment
(in EUR) Furniture,
Land & Vehicles &
fittings & Total
buildings machinery
equipment
As at 1 January 2008
Cost 65,186,188 20,032,673 34,571,658 119,790,519
Accumulated depreciation (13,344,007) (11,173,011) (11,406,491) (35,923,509)
Carrying amount 51,842,181 8,859,662 23,165,167 83,867,010
Year 2008
Opening carrying amount 51,842,181 8,859,662 23,165,167 83,867,010
Exchange differences (161,735) 408,345 (39,681) 206,929
Acquisition of subsidiary (Note 32) - 465 - 465
Disposal of subsidiary (Note 32) (10,059,739) (8,829,634) (13,926,064) (32,815,437)
Additions 1,278,336 14,705,637 1,745,332 17,729,305
Disposals (6,187,361) (109,245) (414,285) (6,710,891)
Depreciation charge (895,166) (2,219,225) (2,657,317) (5,771,708)
Transfer to investment property (20,202,004) (20,202,004)
Closing carrying amount 15,614,512 12,816,005 7,873,152 36,303,669
As at 31 December 2008
Cost 18,956,006 18,959,446 16,088,552 54,004,004
Accumulated depreciation (3,341,494) (6,143,441) (8,215,400) (17,700,335)
Carrying amount 15,614,512 12,816,005 7,873,152 36,303,669
Year 2009
Opening carrying amount 15,614,512 12,816,005 7,873,152 36,303,669
Exchange differences (124,395) (33,525) (351,282) (509,202)
Acquisition of subsidiary (Note 32)
339,521 13,096 45,134 397,751
Disposal of subsidiary (Note 32)
(160,540) (6,867) (55,282) (222,689)
Additions 2,189,000 1,599,308 856,194 4,644,503
Disposals (820,525) (432,351) (638,442) (1,891,318)
Depreciation charge (221,427) (2,096,253) (1,279,621) (3,597,301)
Transfer to investment property - - - -
Closing carrying amount 16,816,146 11,859,413 6,449,853 35,125,413
As at 31 December 2009
Cost 21,261,685 18,800,467 15,167,259 55,229,411
Accumulated depreciation (4,445,539) (6,941,054) (8,717,406) (20,103,999)
Carrying amount 16,816,146 11,859,413 6,449,853 35,125,412
Bank borrowings are collateralised by land and buildings with a carrying amount of EUR 2,073,430 (2008: EUR 2,668,982).
The value of property, plant and equipment under construction as at 31 December 2009 was EUR 394,145 (2008: EUR
382,037).
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The Group KD Group Annual Report 2009
Notes to Consolidated Financial Statements as at and for the year ended 31 December 2009
8. Investment property
(in EUR) 31.12.2009 31.12.2008
As at 1 January
Cost 32,693,964 24,058,580
Accumulated depreciation (3,986,377) (3,457,059)
Carrying amount 28,707,587 20,601,521
Year ended 31 December
Opening carrying amount 28,707,587 20,601,521
Acquisition of subsidiary - -
Disposal of subsidiary - (12,566,563)
Additions 2,688,537 1,649,333
Transfer from property, plan and equipment - 20,202,004
Disposals (1,051,007) (536,071)
Depreciation charge (531,577) (642,637)
Closing carrying amount 29,813,540 28,707,587
As at 31 December
Cost 34,292,196 32,693,964
Accumulated depreciation (4,478,656) (3,986,377)
Carrying amount 29,813,540 28,707,587
In 2009 the Group increased their share of investment properties owned by the Group. Consequently, this resulted in an
increase in the investment property recognised in the consolidated financial statements and a reduction in the value of
property, plant and equipment.
The following amounts have been recognised in the income statement:
(in EUR) 2009 2008
Rental income 3,212,082 1,141,511
Direct operating expenses arising from investment properties that generate rental income 723,642 956,250
The Group does not have any investment properties that do not generate rental income. Lease agreements are short-term
and cancellable.
Investments in land and buildings are initially measured at acquisition price, including all costs of the transaction. After initial
recognition, they are disclosed at acquisition price, decreased by the depreciation charge and accrued loss attributable to
impairment (cost model) - much like intangible assets.
The Group assesses the need for impairment of investment property based on valuations of a licensed real estate appraiser,
material changes in real estate prices, and under normal market conditions, on a three to five-year basis.
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The Group KD Group Annual Report 2009
Notes to Consolidated Financial Statements as at and for the year ended 31 December 2009
9. Intangible assets
Computer
Goodwill Licences Total
software
(in EUR)
As at 1 January 2008
Cost 84,228,319 2,005,457 12,463,933 98,697,709
Accumulated amortisation and impairment (1,569,005) (630,546) (8,601,517) (10,801,068)
Carrying amount 82,659,314 1,374,911 3,862,416 87,896,641
Year 2008
Opening carrying amount 82,659,314 1,374,911 3,862,416 87,896,641
Exchange differences (4,235) (27,406) (31,641)
Additions 4,530,347 141,112 5,212,817 9,884,276
Acquisition of subsidiary 127,058 - - 127,058
Increase in equity share of subsidiaries - - - -
Disposals - (26,908) - (26,908)
Disposal of subsidiary (1,017,744) (124,702) (1,247,151) (2,389,597)
Amortisation charge (65,347) (1,443,679) (1,509,026)
Impairment charge (25,722,775) - - (25,722,775)
Closing carrying amount 60,576,200 1,294,831 6,356,997 68,228,028
As at 31 December 2008
Cost 87,867,980 1,362,505 15,102,612 104,333,097
Accumulated amortisation and impairment (27,291,780) (67,674) (8,745,615) (36,105,069)
Carrying amount 60,576,200 1,294,831 6,356,997 68,228,028
Year 2009
Opening carrying amount 60,576,200 1,294,831 6,356,997 68,228,028
Exchange differences - (2,694) (18,507) (21,201)
Additions 429,604 223,416 6,722,562 7,375,582
Acquisition of subsidiary 4,814,498 - - 4,814,498
Increase in equity share of subsidiaries - - - -
Disposals - (28,204) (1,045,444) (1,073,648)
Disposal of subsidiary (Pojasnilo 32) - - (147,962) (147,962)
Amortisation charge
- (65,073) (1,879,536) (1,944,609)
Impairment charge
(5,904,886) - - (5,904,886)
Transfer to intangible assets - (1,202,547) 1,202,547 -
Closing carrying amount
59,915,416 219,729 11,190,657 71,325,802
As at 31 December 2009
Cost
93,112,082 384,198 20,651,778 114,148,058
Accumulated amortisation and impairment
(33,196,666) (164,469) (9,461,121) (42,822,256)
Carrying amount
59,915,416 219,729 11,190,657 71,325,802
The value of intangible assets under construction as at 31 December 2009 was EUR 2,459,922 (2008: EUR 1,977,890).
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The Group KD Group Annual Report 2009
Notes to Consolidated Financial Statements as at and for the year ended 31 December 2009
The segment-level summary of the goodwill allocation is presented below:
(in EUR) Property Financial Life
insurance operations Banking insurance Other Group
Slovenia 24,441,425 28,677,000 - 2,855,310 728,690 56,702,425
Euro area - 440,656 - - - 440,656
Other countries - 2,395,201 - - 377,134 2,772,335
Total at 31 December 2009 24,441,425 31,512,857 - 2,855,310 1,105,824 59,915,416
Slovenia 24,441,425 28,677,000 - 2,855,310 299,008 56,272,743
Euro area - 641,376 - 83,382 - 724,757
Other countries - 3,578,705 - - - 3,578,705
Total at 31 December 2008 24,441,425 32,897,081 - 2,938,692 299,008 60,576,204
Goodwill is allocated mainly to the property insurance and financial operations segments and is assessed annually for
impairment.
The impairment charge of goodwill in the financial operations segment in 2009 was EUR 5,904,886 (in 2008 EUR
25,722,755).
Impairment of goodwill is recognised in other expenses (Note 23).
The goodwill of the financial operations segment was assessed by an independent qualified expert using the following key
assumptions in 2009:
- present value of future cash-flows without indebtedness;
- estimation was based on analysis of past operations and estimation of future business opportunities;
- cash return was discounted with the appropriate weighted arithmetic average of return rate of debt and equity
securities;
- the CAMP model was used, modified for each country;
- assumptions: 4% expected rate of return on non-risk investments, 7% premium for capital risk, 1.05% for systematic
risk, 1% premium for particular risk, 20% discount for illiquidity, political risk factor between 1.05 and 1.15, 2%
premium of investment in small companies;
- return on equity between 12.6% and 16.1%;
- profitability between 22.2% and 30% (depending on individual market saturation);
- growth between 3.6% and 30% (depending on individual market saturation).
-
The goodwill of the financial operations segment was assessed by an independent qualified expert using the following key
assumptions in 2008:
- present value of future cash-flows without indebtedness;
- estimation was based on analysis of past operations and estimation of future business opportunities;
- cash return was discounted with the appropriate weighted arithmetic average of return rate of debt and equity
securities;
- the CAMP model was used, modified to each country;
- assumptions: 4% expected rate of return on non-risk investments, 7% premium for capital risk, 1.05% for systematic
risk, 1% premium for particular risk, 25% discount for illiquidity;
- return on equity between 12.6% and 16.1%.
In 2009, the appraisal of the property insurance segment was verified using an internal method of evaluation.
146
The Group KD Group Annual Report 2009
Notes to Consolidated Financial Statements as at and for the year ended 31 December 2009
Key assumptions used in 2009 for the property insurance segment are:
- the income approach (discounted cash flows) and market approach methods were used to calculate a range of
values for the property insurance business;
- the best management projections and estimates regarding the future premium were used for the period 2009-2014.
For the following years, decreasing growth rates consistent with market growth were used. The forecasted growth of
Slovenian general insurance market is approximately 7% annually;
- unearned premium reserve projection is based on the premium earning patterns applied to the gross premium
amount for each calendar year and line of business separately;
- ceded premium assumptions range from 0% to 35% of the gross earned premium depending on the line of
business. Ceded claims assumptions range from 0% to 50% of the gross claims incurred depending on the line of
business;
- ultimate loss ratio assumptions for future accident years range from 35% to 110% depending on the line on
business;
- The risk discount rate of 12.6% was derived based on CAPM ("Capital Asset Pricing Model").
Based on the results of the valuation, which was performed by an independent qualified expert, the Group assessed that the
goodwill related to the property insurance segment does not require impairment. Even if there was a change (within
reasonable limits) in the assumprions, impairment would not be required.
The goodwill was assessed using an internal method of evaluation. Goodwill does not require impairment according to this
assessment.
10. Investments in associates
(in EUR) 2009 2008
Balance at 1 January 81,077,285 71,687,821
Acquisitions 4,018,887 14,571,598
Disposals (21,601,237) (3,060,605)
Increase in stake from associate to subsidiary (51,872) -
Increase in stake from AFS investment to associate - 31,288,510
Share of profit and revaluation (11,621,213) (27,407,028)
Other revaluation 548,374 (128,586)
Dividends (61,473) (5,874,425)
Exchange differences - -
Impairment - -
Balance at 31 December 52,308,751 81,077,285
In December 2009 the Group disposed ofan associated company BIG. The largest part of the loss on disposal was realised
by the sale of BIG in the amount EUR 10,634,685, which is recognised in the income statement under financial expenses
from shares in associated companies. Also, the Group recognised the largest part of losses attributed to BIG in the amount
EUR 13,539,434.
In July 2009 the Group partially disposed of its investment in associate MIG (26.48%), reducing its stake to only 3.73%, which
means that MIG is no longer an associated comapny. The Group realised EUR 172,003 of gains on dispoal of MIG, which is
recognised in the income statement under financial revenues from shares in associated companies.
The Group in 2009 recognised profit from its share in KD ID in the amount EUR 1,357,457.
In 2009, the Group invested EUR 1,625,698 in KD Group mutual funds, and sold EUR 3,187,210 of mutual funds.
The Group increased the capital of KD Private Equity Netherlands in November 2009 in the amount of EUR 481,790 the
Group’s equity share in this company has not changed.
147
The Group KD Group Annual Report 2009
Notes to Consolidated Financial Statements as at and for the year ended 31 December 2009
Information on associates of the Group:
(in EUR) 2009
Share of interest
Designated
Registered Profit (loss) –
Associates Associates at fair value Total Assets Liabilities Revenue
office pro rata share
through P/L
Concorde PS d.o.o. Slovenia 50.00% - 50.00% 686,618 151,668 695,460 (68,716)
Seaway Group d.o.o. Slovenia 45.00% - 45.00% 37,818,585 25,948,653 30,797,223 438,762
Seaway Skupina d.o.o. Slovenia 48.65% - 48.65% 22,016,584 22,023,416 28,790 (3,056)
Seaway Technologies Italy 48.65% - 48.65% 29,862,847 27,731,419 5,026,335 58,388
Žičnice Vogel Bohinj d.d. Slovenia 21.76% - 21.76% 13,690,318 8,325,251 2,652,322 (37,104)
Deželna banka Slovenije d.d. Slovenia 35.62% - 35.62% 955,005,000 876,562,000 51,233,000 137,502
KD ID d.d.* Slovenia 11.34% - 11.34% 67,946,778 1,896,101 19,297,429 1,357,457
Semenarna Ljubljana Slovenia 29.90% - 29.90% 57,741,425 44,241,396 46,653,423 71,525
Nama d.d. Slovenia 48.46% - 48.46% 15,469,752 5,262,199 17,161,869 275,857
KD Private Equity b.v. Netherlands 48.21% - 48.21% 221,774 26,986 950 (437,202)
Zellner Holdings Limited, Cyprus Cyprus 48.65% - 48.65% 190,143 901,475 - (25,344)
1,200,649,824 1,013,070,564 173,546,801 1,768,069
*together with the parent company KD d. d. over 20%
(in EUR) 2008
Share of interest
Designated at
Profit (loss) –
Associates Registered office Associates fair value Total Assets Liabilities Revenue
pro rata share
through P/L
Concorde PS d.o.o. Slovenia 50.00% - 50.00% 842,293 153,972 1,036,703 6,093
Seaway Group d.o.o. Slovenia 45.00% - 45.00% 42,852,865 31,956,898 38,243,950 855,363
Seaway Skupina d.o.o. Slovenia 48.65% - 48.65% 79,613,155 68,779,774 37,630,193 (3,170)
Seaway Technologies Italy 48.65% - 48.65% 15,799,527 13,950,072 857,774 (78,792)
Žičnice Vogel Bohinj d.d. Slovenia 21.76% - 21.76% 14,485,722 8,950,126 2,821,861 (57,855)
Radio Kranj d.o.o. Slovenia 20.00% - 20.00% 847,952 133,983 739,042 8,981
Deželna banka Slovenije d.d. Slovenia 35.62% - 35.62% 882,385,000 805,505,000 59,923,000 419,568
KD ID d.d.* Slovenia 9.93% - 9.93% 56,042,001 1,964,484 18,877,587 (8,717,081)
Semenarna Ljubljana Slovenia 29.90% - 29.90% 57,435,471 43,951,378 54,227,298 (102,554)
Nama d.d. Slovenia 48.46% - 48.46% 17,042,486 7,598,577 18,600,783 231,104
KD Private Equity b.v. Netherlands 48.21% - 48.21% 451,172 347,746 13,864 (390,538)
Zellner Holdings Limited, Cyprus 48.65% - 48.65% 185,657 844,894 - (402,425)
C
MIG Montenegro 30.21% - 30.21% 16,284,774 2,459,095 215,497 (7,504,207)
BIG FBIH 21.25% - 21.25% 130,922,407 91,019 1,146,547 (3,729,352)
World Life Group LLC Cyprus 35.00% - 35.00% 1,012,317 3,434,723 - (847,842)
EU Life Group LLC** Ukraine 35.00% - 35.00% 1,386,106 490,037 5,395,217 112,306
EU Life Services LLC** Ukrajina 35.00% - 35.00% 8,850 1,348 130,085 212
1,361,001,588 1,026,110,318 283,263,234 (20,200,189)
*together with the parent company KD d. d. over 20%
**effective part
148
The Group KD Group Annual Report 2009
Notes to Consolidated Financial Statements as at and for the year ended 31 December 2009
11. Financial assets
(in EUR) 31.12.2009 31.12.2008
At fair value through profit or loss
Current
Held for trading 18,301,847 15,387,151
Initially recognised through profit or loss 19,735,404 20,123,529
Non-Current
Held for trading - -
Initially recognised through profit or loss 36,121 -
38,073,372 35,510,680
Held to maturity
Non-current 18,223,586 7,517,833
Current 71,699 326,876
18,295,285 7,844,709
Available for sale
Non-current 165,587,808 157,742,638
Current 24,473,415 29,732,227
190,061,223 187,474,865
Loans and receivables
Non-current 11,493,386 7,961,005
Current 80,525,608 89,824,675
92,018,994 97,785,680
Derivative financial instruments 1,146,675 -
Total 339,595,549 328,615,934
The value of securities pledged as collateral for liabilities in 2009 amounted to EUR 1,134,280 (2008: EUR 11,407,847).
11.1 Financial assets at fair value through profit or loss – held for trading
(in EUR) 31. 12. 2009 31. 12. 2008
Equity securities
Listed securities 11,058,431 13,265,871
Debt securities
Listed securities:
Fixed interest rate 6,699,642 1,573,405
Variable interest rate 543,774 547,875
7,243,416 2,121,280
Government bonds - -
Total 18,301,847 15,387,151
149
The Group KD Group Annual Report 2009
Notes to Consolidated Financial Statements as at and for the year ended 31 December 2009
11.2 Financial assets at fair value through profit or loss – other assets
(in EUR) 31. 12. 2009 31. 12. 2008
Equity securities
Listed securities 3,305,455 2,582,824
Debt securities
Listed securities
Fixed interest rate 15,836,767 16,804,008
Variable interest rate - -
15,836,767 16,804,008
Non-listed securities
Fixed interest rate 261,437 236,536
Government bonds 367,866 500,161
Total 19,771,525 20,123,529
11.3 Investments held to maturity
(in EUR) 31. 12. 2009 31. 12. 2008
Debt securities
Listed securities
Fixed interest rate 9,070,816 6,061,421
Variable interest rate 209,195 209,145
9,280,011 6,270,566
Non-listed securities
Fixed interest rate 417,720 427,282
Government bonds 8,597,554 1,146,861
Total 18,295,285 7,844,709
11.4 Financial assets available for sale
(in EUR) 31. 12. 2009 31. 12. 2008
Equity securities
Listed securities 42,670,344 65,333,146
Non-listed securities 11,668,025 1,505,508
54,338,369 66,838,654
Debt securities
Listed securities
Fixed interest rate 34,163,236 30,543,147
Variable interest rate 1,478,407 1,536,065
35,641,643 32,079,212
Non-listed securities
Fixed interest rate 539,020 -
Government bonds 99,542,191 88,556,999
Total 190,061,223 187,474,865
150
The Group KD Group Annual Report 2009
Notes to Consolidated Financial Statements as at and for the year ended 31 December 2009
11.5 Investments in loans and other financial receivables
(in EUR) 31. 12. 2009 31. 12. 2008
Loans to individuals
Non-current 5,770,983 526,970
Current 1,065,418 3,070,884
Loans to corporate entities
Non-current 3,077,240 4,585,241
Current 21,796,127 29,979,899
Loans to related parties
Non-current - -
Current 14,594,479 14,038,840
Bank deposits
Non-current 5,899,160 2,946,609
Current 26,281,159 42,969,280
Total loans 78,484,566 98,117,723
Dividend receivables
1,117 2,574
Less: allowance for losses on loans and advances
Non-current (80,846) (100,933)
Current (5,392,621) (233,684)
(5,473,467) (334,617)
Total other loans and receivables 73,012,216 97,785,680
Loans to banks 4,896,696 -
Loans to non-banking clients 14,110,082 -
19,006,778 -
Total 92,018,994 97,785,680
Investments in loans include also investment contracts assets.
Current bank deposits are not accounted for as as cash and cash equivalents, as the insurance undertakings in the Group
recognise these as investments.
Movement in allowance for losses on loans:
(in EUR) 2009 2008
Balance as at 1 January 334,717 1,349,910
Impairment during the year 5,164,971 7,608
Disposal of subsidiaries - (860,052)
Reversal of impairment during the year (26,121) (162,849)
Balance as at 31 December 5,473,467 334,717
151
The Group KD Group Annual Report 2009
Notes to Consolidated Financial Statements as at and for the year ended 31 December 2009
The effective interest rates on loans and deposits were as follows:
2009 2008
Non-current loans 2.50% – 8.00% 6.57% – 8.00%
Current loans 2.24% – 9.00% 6.00% – 10.00%
Loans to related parties 2.24% – 8.00% 4.92% – 8.00%
Short-term bank deposits 1.40% – 1.80% 2.80% – 4.85%
11.6 Movements in financial assets
Fair value through Fair value through
profit or loss – profit or loss – Available for Held to
trading other sale maturity Total
(in EUR)
As at 1 January 2009 15,387,151 20,123,529 187,474,865 7,844,709 230,830,254
Exchange differences on monetary
assets (45,846) (17,705) (133,183) (127,111) (323,845)
Additions 143,874,647 4,178,281 84,017,582 12,729,475 244,799,985
Acquisition of subsidiaries - - 3,476,199 - 3,476,199
Disposal of subsidiaries (15,803) - (751,996) - (767,799)
Disposals (sale and redemption) (141,068,581) (4,273,705) (83,789,308) (2,151,788*) (231,283,382)
Impairment of available-for-sale equity
securities - - (2,927,247) - (2,927,247)
Reversal of impairment - - 183,890 - 183,890
Net fair value gains – excluding net
realised gains 170,279 (238,875) 2,510,421 - 2,441,825
As at 31 December 2009 18,301,847 19,771,525 190,061,223 18,295,285 246,429,880
As at 1 January 2008 42,508,318 20,935,380 317,214,328 7,590,164 388,248,190
Exchange differences on monetary
assets 45,197 (41,106) (70,152) (95,184) (161,245)
Additions 17,011,892 27,039,659 55,237,993 1,709,961 100,999,505
Acquisition of subsidiaries - - - - -
Disposal of subsidiaries - (20,504,515) (3,164) - (20,507,679)
Disposals (sale and redemption) (20,523,380) (6,489,301) (100,645,184) (1,360,232*) (129,018,097)
Impairment of available-for-sale equity
(24,846,256)
securities - - (24,846,256) -
Net fair value gains – excluding net
realised gains (23,654,876) (816,588) (59,412,700) - (83,884,164)
As at 31 December 2008 15,387,151 20,123,529 187,474,865 7,844,709 230,830,254
* only redemption
Investments in loans include also investment contracts assets.
Impairment of available-for-sale non-listed equity securities is recognised either on the basis of external independent
valuations, using the discounted future cash flow method, or on the basis of an internal model whose appropriateness has
been assessed by an independent qualified expert.
152
The Group KD Group Annual Report 2009
Notes to Consolidated Financial Statements as at and for the year ended 31 December 2009
According to valuations performed in 2009, an impairment of EUR 2,927,247(2008: EUR 24,846,256) was recognised. The
following key assumptions were used in these valuations:
- the method of discounted cash flows was used;
- projections were made for minority shareholders;
- cash flow projections for the period of 5 years were prepared;
- the revenue growth rates range up to 5% per year;
- the growth of employee costs was 3% per year;
- the discount rates range up to 11.6% per year.
The effective interest rates on debt securities were as follows:
2009 2008
Debt securities:
– held-to-maturity financial assets 5.07% 5.10%
– available-for-sale financial assets 4.67% - 4.95% 4.36% – 4.96%
12. Receivables
Insurance receivables and other receivables
(in EUR) 31. 12. 2009 31. 12. 2008
Trade receivables
Current 15,737,152 23,753,580
Less: provision for impairment of receivables (2,429,575) (2,773,538)
Trade receivables – net 13,307,577 20,980,042
Receivables arising from insurance and reinsurance contracts:
Due from contract holders 47,685,958 46,108,340
Less: provision for impairment of receivables from contract holders (20,652,127) (17,092,336)
Due from agents, brokers and intermediaries 31,493,129 31,434,550
Less: provision for impairment of receivables from agents, brokers and
intermediaries (19,078,828) (18,008,367)
Due from reinsurers 4,645,559 5,037,942
Less: provision for impairment of receivables from reinsurers (3,176) (1,630)
Receivables arising from insurance and reinsurance contracts – net 44,090,515 47,478,499
Prepayments 483,518 555,200
Receivables from related parties - 834,386
483,518 1,389,586
Total 57,881,610 69,848,127
153
The Group KD Group Annual Report 2009
Notes to Consolidated Financial Statements as at and for the year ended 31 December 2009
Deferred acquisition costs (DAC) and deferred expenses and accrued revenue
(in EUR) 31. 12. 2009 31. 12. 2008
Deferred acquisition costs (DAC) 8,103,645 11,566,010
Deferred expenses and accrued revenue 3,798,016 2,221,991
Total 11,901,661 13,788,001
Trade receivables of EUR 3,583,141(2008: EUR 19,036,829) are classified as current assets based on the normal operating
cycle, but are expected to be settled more than 12 months after the balance sheet date.
Movement in allowance for losses on trade and other receivables:
(in EUR) 2009 2008
Balance as at 1 January 37,825,871 35,383,057
Provision for receivable impairment 8,270,730 8,360,265
Receivables written off during the year as uncollectible (143,249) 318,020
Acquisition of subsidiary 19,646 -
Exit from the Group (63,410) (590,542)
Amounts recovered during the year (3,745,882) (5,644,929)
As at 31 December 42,163,706 37,825,871
13. Inventories
(in EUR) 31. 12. 2009 31. 12. 2008
Property intended for sale in the ordinary course of business 11,845,796 12,653,557
Other 1,597,263 1,279,251
Total 13,443,059 13,932,808
Property intended for sale consists of the commercial-residential building Šumi. Other inventories consist of material and raw
material (books and publications). Inventories are not pledged as collateral for liabilities.
14. Cash and cash equivalents
(in EUR) 31. 12. 2009 31. 12. 2008
Cash at bank and in hand 13,378,915 9,500,699
Call deposits 27,351,157 21,804,493
Total 40,730,072 31,305,192
The effective interest rate on call deposits with banks is 1.6% (2008: between 3.00% and 4.10%).
The Group has open end credit lines in the amount EUR 200,000 and overdrafts on accounts at banks in the amount EUR
125,000.
154
The Group KD Group Annual Report 2009
Notes to Consolidated Financial Statements as at and for the year ended 31 December 2009
15. Equity
Share capital
No. of shares Ordinary Preference Share Treasury
(in EUR) Ordinary Preference shares shares premium shares Total
Balance as at 1 January 2008 2,613,439 215,107 89,321,983 8,893,774 104,395,312 (3,852,955) 198,758,114
Purchase of treasury shares - - - - - - -
Disposal of treasury shares - - - - - - -
Balance as at 31 December 2008 2,613,439 215,107 89,321,983 8,893,774 104,395,312 (3,852,955) 198,758,114
Balance as at 1 January 2009 2,613,439 215,107 89,321,983 8,893,774 104,395,312 (3,852,955) 198,758,114
Purchase of treasury shares - - - - - - -
Disposal of treasury shares - - - - - - -
Balance as at 31 December 2009 2,613,439 215,107 89,321,983 8,893,774 104,395,312 (3,852,955) 198,758,114
The total number of shares, including treasury shares, is:
- ordinary shares issued 2,675,640 (2008: 2,675,640),
- preference shares issued 266,413 (2008: 266,413).
Share premium in the amount of EUR 104,395,312 includes:
- Share premium in the amount of EUR 45,177,164,
- Revaluation reserves in the amount of EUR 59,218,148.
The ordinary shares have been traded on the organised market of the Ljubljana Stock Exchange since 2001 and give the
shareholders the voting rights and the entitlement to dividends.
Preference shares carry no voting rights but provide their holder with the following rights:
- Preference right to a dividend payment in the amount of EUR 1.67 before dividend payments to ordinary
shareholders; in cumulative period of 5 years.
- In the event of a dividend payout to ordinary shareholders, the right to an additional dividend payment in the amount
of EUR 1.67, for a maximum preference dividend payment of EUR 3.34;
- In the event of liquidation of the company, the right of preferential treatment compared to ordinary shareholders,
providing a payout of the remaining assets after liquidation in the amount of EUR 33.38.
At the 9th General Meeting of Shareholders of KD Group d. d. held on 30 August 2006, the shareholders adopted a resolution
by which each share carrying a nominal value of SIT 8,000 was replaced by one non-par value share. The share capital and
the number of shares issued remained unchanged.
Treasury shares
(in EUR) 2009 2008
Carrying Purchase Carrying Share (%) Carrying Purchase Carrying Share (%)
value value value in capital value value value in capital
1 Jan 31 Dec 1 Jan 31 Dec
KDHR* 2,424,829 - 2,424,829 2.11 2,424,829 - 2,424,829 2.11
KDHP** 1,428,126 - 1,428,126 1.74 1,428,126 - 1,428,126 1.74
Total: 3,852,955 - 3,852,955 3.85 3,852,955 - 3,852,955 3.85
* ordinary shares
**preference shares
155
The Group KD Group Annual Report 2009
Notes to Consolidated Financial Statements as at and for the year ended 31 December 2009
2009 2008
Number Number Number Number
1 Jan Purchase 31 Dec 1 Jan Disposal 31 Dec
Number of shares
KDHR 62,201 - 62,201 62,201 - 62,201
KDHP 51,306 - 51,306 51,306 - 51,306
Total 113,507 - 113,507 113,507 - 113,507
Accumulated profit of KD Group d. d.
In accordance with the decision of the Management Board as at 31 December 2009, the net loss incurred in 2009 of EUR
52,827,433.37 is covered as follows:
- EUR 8,152,469.82 from the remaining retained earnings after creating reserves for treasury shares
- EUR 44,674,963.55 from capital surplus.
16. Other reserves and retained earnings
(in EUR) 31. 12. 2009 31. 12. 2008
Consolidation adjustment (4,390,329) (4,320,061)
Revaluation reserve– AFS financial assets 5,470,089 (430,319)
Revaluation of derivative financial instruments (294,121) (350,697)
Retained earnings (6,543,389) (4,549,122)
Total (5,757,750) (9,650,199)
Foreign
(in EUR) Revaluation Cash flow currency Retained
Total
reserve – AFS hedge reserve translation earnings
reserve
Balance as at 1 January 2008 55,574,797 (33,272) (1,463,252) 76,416,444 130,494,717
Revaluation – gross (59,412,700) - - - (59,412,700)
Revaluation – tax 9,484,742 - - - 9,484,742
Net gains transferred to net profit – gross (33,393,801) - - - (33,393,801)
Net gains transferred to net profit – tax (Note
21) 3,619,691 - - - 3,619,691
Impairment – gross 24,846,254 - - - 24,846,254
Impairment – tax (1,453,605) - - - (1,453,605)
Share increase of associates - - - 14,329,037 14,329,037
Currency translation differences: - - - - -
- Group - - (2,856,809) - (2,856,809)
- Associates - - - - -
Revaluation – derivative instrument - (317,425) - - (317,425)
Other increases (Note 4) - - - 1,667,880 1,667,880
Profit for the year - - - (77,217,976) (77,217,976)
Dividends - - - (19,744,507) (19,744,507)
Minority interest 304,303 - - - 304,303
Balance as at 31 December 2008 (430,319) (350,697) (4,320,061) (4,549,122) (9,650,199)
156
The Group KD Group Annual Report 2009
Notes to Consolidated Financial Statements as at and for the year ended 31 December 2009
Foreign
(in EUR) Revaluation Cash flow currency Retained
Total
reserve – AFS hedge reserve translation earnings
reserve
Balance as at 1 January 2009 (430,319) (350,697) (4,320,061) (4,549,122) (9,650,199)
Revaluation – gross 3,381,477 - - - 3,381,477
Revaluation – tax (898,121) - - - (898,121)
Net gains transferred to net profit – gross 556,530 - - - 556,530
Net gains transferred to net profit – tax (Note
21) 81,418 - - - 81,418
Impairment – gross 4,194,794 - - - 4,194,794
Impairment – tax (838,959) - - - (838,959)
Revaluation - associates - - - - -
Revaluation – derivative instrument - gross - 70,716 - - 70,716
Revaluation – derivative instrument - tax - (14,140) - - (14,140)
Currency translation differences: - - - - -
- Group - - (74,229) - (74,229)
- Associates - - - - -
Other increases - - - (166,251) (166,251)
Other decreases (Note 4) - - - (1,698,091) (1,698,091)
Profit for the year - - - (43,887,570) (43,887,570)
Dividends - - - (166,630) (166,630)
Decrease of capital reserve - - - 43,924,275 43,924,275
Minority interest (576,731) - 3,961 - (572,770)
Balance as at 31 December 2009 5,470,089 (294,121) (4,390,329) (6,543,389) (5,757,750)
17. Borrowings
(in EUR) 31. 12. 2009 31. 12. 2008
Non-current
Bank borrowings
In Slovenia 11,889,561 41,506,759
Current portion (6,875,318) (6,570,735)
Other borrowings 2,272,404 333,489
Current portion (2,139,339) (122,315)
Bonds issued 75,521,481 75,449,991
Current portion (1,422,394) (1,435,142)
Time deposits
Current portion 15,530,894 -
94,777,289 109,162,047
Current
Bank borrowings
In Slovenia 65,000,952 63,916,996
Other borrowings 24,490,237 350,668
Current portion of non-current borrowings 10,437,051 8,128,192
99,928,240 72,395,856
Total 194,705,529 181,557,903
157
The Group KD Group Annual Report 2009
Notes to Consolidated Financial Statements as at and for the year ended 31 December 2009
Total borrowings include borrowings which are collateralised with pledged assets and guarantees in the amount of EUR
93,138,121 (2008 EUR 86,673,238). Bank borrowings are collateralised by the pledged property of the Group (Note 7).
The effective interest rates on borrowings were as follows:
2009 2008
Non-current borrowings 2.33% – 3.77% 5.23% – 5.99%
Current borrowings 2.02% – 7.00% 4.45% –7.63%
18. Insurance contracts liabilities
Insurance liabilities and reinsurance assets
(in EUR) 31.12.2009 31.12.2008
Insurance contracts
Property insurance contracts and health insurance contracts – gross:
- claims reported and loss adjustment expenses 66,135,589 68,641,921
- claims incurred but not reported 75,255,446 61,752,371
- unearned premiums 66,068,628 67,247,245
- provisions for bonuses, rebates and lapses 333,937 194,834
- mathematical provisions (for health insurance) 145,177 169,446
- other technical provisions (unexpired risk provisions included) 3,424,248 4,718,116
211,363,025 202,723,933
Life insurance contracts – gross
- claims reported and loss adjustment expenses 2,705,468 2,317,863
- claims incurred but not reported 3,482,512 2,829,771
- unearned premiums 875,448 2,722,850
- provisions for bonuses, rebates and lapses 126,971 11,100
- mathematical provisions (for life insurance) 1,412,912 132,816
- other technical provisions (unexpired risk provisions included) 1,459 6,888
8,604,770 8,021,288
Long-term insurance contracts
- with DPF 76,130,189 66,935,728
- without fixed terms – unit-linked 140,108,844 79,308,743
216,239,033 146,244,471
Total insurance liabilities, gross 436,206,828 356,989,692
Receivables from reinsurers
Property insurance contracts:
- claims reported and loss adjustment expenses 17,251,633 15,320,171
- claims incurred but not reported 1,131,099 803,147
- unearned premiums 847,474 1,064,654
- provisions for bonuses, rebates 813 749
19,231,019 17,188,721
Life insurance contracts
- claims reported and loss adjustment expenses 162,746 119,552
- claims incurred but not reported 1,072 256
- unearned premiums 52,961 53,633
216,779 173,441
158
The Group KD Group Annual Report 2009
Notes to Consolidated Financial Statements as at and for the year ended 31 December 2009
(in EUR) 31.12.2009 31.12.2008
Long-term insurance contracts
- with DPF 1,210 541
1,210 541
Total reinsurers receivables 19,449,008 17,362,703
Property insurance contracts and health insurance contracts – net:
- claims reported and loss adjustment expenses 48,883,956 53,321,750
- claims incurred but not reported 74,124,347 60,949,224
- unearned premiums 65,221,154 66,182,591
- provisions for bonuses, rebates 333,124 194,085
- mathematical provision (for health insurance) 145,177 169,446
- other technical provisions (unexpired risk provisions included) 3,424,248 4,718,116
192,132,006 185,535,212
Life insurance contracts–net
- claims reported and loss adjustment expenses 2,542,722 2,198,311
- claims incurred but not reported 3,481,440 2,829,515
- unearned premiums 822,487 2,669,217
- provisions for bonuses, rebates 126,971 11,100
- mathematical provision (for life insurance) 1,412,912 132,816
- other technical provisions (unexpired risk provisions included) 1,459 6,888
8,387,991 7,847,847
Long-term insurance contracts
- with DPF 76,128,979 66,935,187
- without fixed terms – unit-linked 140,108,844 79,308,743
216,237,823 146,243,930
Total 416,757,820 339,626,989
Movements in insurance liabilities and reinsurance assets
a) Claims and loss adjustment expenses
(in EUR) 2009 2008
Gross Reinsurance Net Gross Reinsurance Net
Reported claims 70,959,781 (15,439,722) 55,520,059 61,129,663 (8,975,642) 52,154,021
Incurred but not reported 64,582,146 (803,404) 63,778,742 58,645,436 (912,813) 57,732,623
Total at the beginning of the year 135,541,927 (16,243,126) 119,298,801 119,775,099 (9,888,455) 109,886,644
Cash paid for claims settled in the year (53,423,474) 7,995,283 (45,428,191) (44,238,193) 2,563,134 (41,675,059)
Increase in liabilities
- arising from current year claims 65,846,870 (7,514,522) 58,332,348 62,381,142 (8,336,224) 54,044,918
- arising from prior year claims (379,792) (2,408,184) (2,787,976) (2,376,121) (581,582) (2,957,703)
Total at the end of the year 147,585,531 (18,170,549) 129,414,982 135,541,927 (16,243,127) 119,298,800
Reported claims 68,841,054 (17,414,379) 51,426,675 70,959,784 (15,439,723) 55,520,061
Incurred but not reported 78,737,961 (1,132,171) 77,605,790 64,582,143 (803,404) 63,778,739
Total at the end of the year 147,579,015 (18,546,550) 129,032,465 135,541,927 (16,243,127) 119,298,800
159
The Group KD Group Annual Report 2009
Notes to Consolidated Financial Statements as at and for the year ended 31 December 2009
b) Unearned premiums
(in EUR) 2009 2008
Gross Reinsurance Net Gross Reinsurance Net
Total at the beginning of the
year 69,970,095 (1,118,287) 68,851,808 69,855,397 (1,115,962) 68,739,435
Increase in liabilities 62,980,118 (894,163) 62,085,955 65,217,263 (1,115,190) 64,102,073
Decrease in liabilities (65,751,419) 1,111,783 (64,639,636) (64,765,565) 1,112,439 (63,653,126)
Currency differences – net (254,718) 232 (254,486) (337,000) 426 (336,574)
Total at the end of the year 66,944,076 (900,435) 66,043,641 69,970,095 (1,118,287) 68,851,808
c) Unit-linked contracts
(in EUR) 2009 2008
Gross Reinsurance Net Gross Reinsurance Net
Total at the beginning of the year 79,308,743 - 79,308,743 112,978,279 - 112,978,279
Increase in liabilities 65,140,958 - 65,140,958 1,565,897 - 1,565,897
Decrease in liabilities (4,321,164) - (4,321,164) (35,191,467) - (35,191,467)
Currency differences – net (19,693) - (19,693) (43,966) - (43,966)
Total at the end of the year 140,108,844 - 140,108,844 79,308,743 - 79,308,743
d) Long-term insurance contracts with DPF
(in EUR) 2009 2008
Gross Reinsurance Net Gross Reinsurance Net
Total at the beginning of the year 66,935,728 (541) 66,935,187 62,548,026 - 62,548,026
Increase linked to premium
payments 10,283,906 (696) 10,283,210 7,410,525 (591) 7,409,934
Decrease linked to payouts (1,722,974) - (1,722,974) (3,033,256) - (3,033,256)
Increase by the DPF portion for the
current period 635,343 - 635,343 13,943 - 13,943
Currency differences – net (1,814) 27 (1,787) (3,510) 50 (3,460)
Total at the end of the year 76,130,189 (1,210) 76,128,979 66,935,728 (541) 66,935,187
e) Other insurance contracts
(in EUR) 2009 2008
Gross Reinsurance Net Gross Reinsurance Net
Total at the beginning of the
year 5,233,200 (749) 5,232,451 3,765,012 (407) 3,764,605
Increase in liabilities 4,495,901 (813) 4,495,088 4,027,659 (749) 4,026,910
Decrease in liabilities (4,145,148) 749 (4,144,399) (2,528,470) 407 (2,528,063)
Currency differences – net (139,249) - (139,249) (31,001) - (31,001)
Total at the end of the year 5,444,704 (813) 5,443,891 5,233,200 (749) 5,232,451
160
The Group KD Group Annual Report 2009
Notes to Consolidated Financial Statements as at and for the year ended 31 December 2009
19. Derivative financial instruments
The Group has an interest swap in the amount of EUR 11,000,000 to reduce the exposure of cash flows for interest on loans
(cash flow hedge) in 2007. The fair value of the interest swap on 31 December 2009 was negative in the amount of EUR
279,981. The effect of hedge instruments valuation is recognised in comprehensive income.
At the end of 2009 the Company entered into a futures transaction for the purchase and sale of securities. The fair value of
the receivables and liabilities is equal to EUR 1,146,675; the net effect in the income statement equals zero.
20. Trade and other payables
(in EUR) 31. 12. 2009 31. 12. 2008
Trade payables 13,597,467 10,570,410
Other provisions and long-term accruals 2,607,327 2,862,590
Income tax liabilities 1,528,147 350,717
Deferred income tax liabilities 1,418,370 -
Amounts due to related parties 126,429 97,617
Payables – state (without income tax) 1,436,755 1,289,075
Salaries 3,436,014 4,209,570
Accrued expenses and deferred income 8,387,081 7,562,401
Dividends payables 686,098 1,435,220
Other insurance payables 12,913,770 17,460,867
Total 46,137,458 45,838,467
21. Deferred tax
Deferred taxes are the result of accounting for current and future tax consequences, namely, the future recovery (settlement) of
the book value of assets (liabilities) recognised in the balance sheet, as well as transactions and other events during the
period, which are offset within the same tax jurisdiction and recognised in the financial statements of the Group.
The offset amounts are as follows:
(in EUR) 31.12.2009 31. 12. 2008
Deferred tax assets
– Deferred tax assets to be recovered after more than 12 months 29,682,588 20,315,147
29,682,588 20,315,147
Deferred tax liabilities
– Deferred tax liabilities to be recovered after more than 12 months (1,418,370) (107,210)
(1,418,370) (107,210)
28,264,218 20,207,937
(in EUR) 2009 2008
The gross movement in the deferred tax account is as follows
Beginning of the year 20,207,757 (2,527,886)
Exchange differences (30,078) (60,644)
Acquisition of subsidiaries (33,920) -
Disposal of subsidiaries (8,004) (74,532)
Income statement charge (Note 28) 9,795,691 11,219,991
Tax charged/(credited) to equity (Note 17) (1,669,802) 11,650,828
At the end of the year 28,264,218 20,207,757
161
The Group KD Group Annual Report 2009
Notes to Consolidated Financial Statements as at and for the year ended 31 December 2009
The movement in deferred tax assets and liabilities during the year, without taking into consideration the offsetting of balances
within the same tax jurisdiction, was as follows:
Deferred tax liabilities
Fair value
(in EUR) gains Other Total
As at 1 January 2008 11,400,456 65,800 11,466,256
Charged/(credited) to the income statement 347,199 (55,991) 291,208
Charged to equity (8,031,137) - (8,031,137)
Charged to equity – transfer to net profit (Note 16) (3,619,691) - (3,619,691)
Acquisition of subsidiaries - - -
Exchange differences 421 153 574
As at 31 December 2008 97,248 9,962 107,210
Charged /(credited) to the income statement (391,248) - (391,248)
Charged to equity – fair value reassessment 1,749,976 1,244 1,751,220
Charged to equity – transfer to net profit (Note 16) (75,305) (6,113) (81,418)
Acquisition of subsidiaries 32,633 - 32,633
Disposal of subsidiaries (27) - (27)
Exchange differences - - -
As at 31 December 2009 1,413,277 5,093 1,418,370
Deferred tax assets
Employee Impairment
(in EUR) benefits losses Tax losses Other Total
As at 1 January 2008 614,959 4,251,798 4,062,197 9,416 8,938,370
Charged/(credited) to the income
statement (195,723) 8,130,829 3,515,832 60,261 11,511,199
Disposal of subsidiaries (7,726) (66,806) - - (74,532)
Exchange differences 1,164 15,868 (77,102) (60,070)
As at 31 December 2008 412,674 12,331,689 7,500,927 69,677 20,314,967
Charged/(credited) to the income
statement (153,072) (1,150,136) 10,735,085 (27,434) 9,404,443
Acquisition of subsidiaries 1,287 - - - 1,287
Disposal of subsidiaries - (8,031) - - (8,031)
Exchange differences - - (30,078) - (30,078)
As at 31 December 2009 260,889 11,173,522 18,205,934 42,243 29,682,588
The deferred tax charged to components of other comprehensive income during the year:
(in EUR) 31. 12. 2009 31. 12. 2008
Fair value reserves in shareholders’ equity
– Available-for-sale financial assets (1,655,662) 12,046,306
– Derivative financial instruments (14,140) -
(1,669,802) 12,046,306
162
The Group KD Group Annual Report 2009
Notes to Consolidated Financial Statements as at and for the year ended 31 December 2009
Deferred tax assets are recognised for tax loss carry-forwards to the extent that realisation of the related tax benefit through
the future taxable profits is probable. All tax losses can be utilised over an unlimited period of time.
The Group did not recognise deferred tax assets of EUR 1,729,912 (2008 EUR 278,368) in respect of losses amounting to
EUR 8,649,560 (2008 EUR 1,325,563) that can be carried forward against future taxable income. These losses were
generated by subsidiaries of the Group with a history of loss-making.
Unrecognised potential deferred tax assets:
(in EUR) 31. 12. 2009 31. 12. 2008
Deductible temporary differences - -
Unrecognised tax loss carry-forwards 8,649,560 1,325,563
Unrecognised tax credits - 23,584
Total 8,649,560 1,349,147
22. Revenue
22.1. Net earned premiums on insurance contracts
(in EUR) 2009 2008
Long-term insurance contracts with DPF 7,077,204 7,634,679
Long-term insurance contracts without fixed terms – unit-linked 68,029,056 82,719,783
Financial contracts with DPF
- Premium receivables 1,449,422 1,704,633
- Change in unearned premium provisions 9,007 34,497
76,564,689 92,093,592
Property insurance contracts and health insurance contracts
- Premium receivables 263,935,937 240,766,222
- Change in unearned premium provisions 1,616,189 (322,049)
265,552,126 240,444,173
Premium income arising from insurance contracts issued 342,116,815 332,537,765
Short-term reinsurance contracts
- Premium payables (11,898,976) (11,420,813)
- Change in unearned premium provisions (218,412) 7,992
Long-term reinsurance contracts 130,950 157,751
Premium revenue ceded to reinsurers on insurance contracts issued (11,986,438) (11,255,070)
Net premiums 330,130,377 321,282,695
163
The Group KD Group Annual Report 2009
Notes to Consolidated Financial Statements as at and for the year ended 31 December 2009
22.2. Revenue and other operating income (excluding net earned premiums on insurance contracts)
(in EUR) 2009 2008
Sales of goods 3,959,957 4,481,153
Fees and commissions income 10,849,086 14,410,812
Sales of services 7,661,080 19,142,091
22,470,123 38,034,056
Other operating income:
Other insurance income 3,934,975 5,660,327
Other operating income 11,761,118 12,516,507
Excess on acquisition of a subsidiary (Note 32) 192,776 31,536
Excess on acquisition of associates (Note 10) - 5,130,921
Excess on disposal of a subsidiary (Note 32) (620,680) 8,963,368
Gain from increase in the share capital of a subsidiary - -
15,268,189 32,302,659
Total 37,738,312 70,336,715
The Group disposed of entities from the financial, life insurance and health insurance segments and recorded a loss of EUR
620,680.
23. Expenses
23.1. Gross benefits and claims paid
2009
(in EUR) Gross Reinsurance Net
Long-term insurance contracts with DPF
- death, maturity and surrender benefits 3,340,155 73,087 3,413,242
- increase of liabilities - - -
Long-term insurance contracts without fixed terms (unit-linked)
- death, maturity and surrender benefits 612,431 - 612,431
- increase of liabilities 66,141,341 - 66,141,341
Net mathematical provisions – insurance contracts with DPF
- death, maturity and surrender benefits 1,317,953 - 1,317,953
- increase of liabilities 3,195,917 - 3,195,917
Property insurance and health insurance
- claims and loss adjustment expenses 199,842,859 (12,126,184) 187,716,675
- increase of liabilities 9,078,171 - 9,078,171
Total cost of policyholder benefits, claims and loss 283,528,827 (12,053,097) 271,475,730
164
The Group KD Group Annual Report 2009
Notes to Consolidated Financial Statements as at and for the year ended 31 December 2009
2008
(in EUR) Gross Reinsurance Net
Long-term insurance contracts with DPF
- death, maturity and surrender benefits 7,104,737 183,737 7,288,474
- increase of liabilities - - -
Long-term insurance contracts without fixed terms (unit-linked)
- death, maturity and surrender benefits 3,547,698 - 3,547,698
- increase of liabilities (33,625,570) - (33,625,570)
Net mathematical provisions – insurance contracts with DPF
- death, maturity and surrender benefits 760,388 - 760,388
- increase of liabilities (4,390,624) - (4,390,624)
Property insurance and health insurance
- claims and loss adjustment expenses 175,157,414 (12,356,648) 162,800,766
- increase of liabilities 20,460,490 - 20,460,490
Total cost of policyholder benefits, claims and loss 169,014,533 (12,172,911) 156,841,622
23.2. Expenses by nature (excluding insurance contract benefits [net] and claims)
(in EUR) 2009 2008
Cost of services 68,689,724 75,690,259
Labour costs
Wages and salaries 43,817,255 48,271,640
Cost of Salaries - pension insurance 4,103,843 4,242,131
Cost of Salaries - social insurance 3,182,529 4,218,087
Other costs of employees 6,259,155 6,960,509
Other long-term and post-employment benefits 214,040 713,301
57,576,822 64,405,668
Total 126,266,546 140,095,927
Number of employees 1,860 1,984
Iinsurance acquisition costs of EUR 22,179,325 are included in the costs of services (in 2008: EUR 17,897,626).
23.3. Other expenses
(in EUR) 2009 2008
Raw materials and consumables used 4,345,613 6,713,694
Depreciation, amortisation and impairment 6,073,487 7,923,372
Other insurance expenses 3,457,514 9,551,654
Other expenses 19,780,439 33,085,695
Total 33,657,053 57,274,415
Impairment of goodwill recognised in 2009 in the amount of EUR 5,904,886 is included in other expenses (in 2008: EUR
25,722,755).
165
The Group KD Group Annual Report 2009
Notes to Consolidated Financial Statements as at and for the year ended 31 December 2009
23.4. Audit fees
(in EUR) 2009 2008
Expenses (VAT included):
- Audit of the financial statements 473,238 546,872
a- Audit services 1,029 11,677
- Tax advisory 9,708 34,734
- Other non-audit services 1,492 -
Total 485,467 593,283
24. Investment income
(in EUR) 2009 2008
Available for sale
dividend income 1,909,599 6,914,290
- interest income, exchange differences 5,761,002 5,244,897
7,670,601 12,159,187
Held to maturity
interest income 766,274 393,763
Financial assets at fair value through profit or loss
dividend income 408,630 956,236
interest income, exchange differences 689,187 1,782,954
1,097,817 2,739,190
Cash and cash equivalents, loans, deposits and receivables
interest income 7,035,267 7,402,781
Total 16,569,959 22,694,921
25. Net realised gains on financial assets available for sale
(in EUR) 2009 2008
Realised gains on financial assets – available for sale 14,265,857 12,072,649
Realised losses on financial assets – available for sale (9,843,946) (2,075,008)
4,421,911 9,997,641
Impairment of financial assets (2,927,247) (24,846,254)
Reversal od impairment 890 -
Total 1,495,554 (14,848,613)
166
The Group KD Group Annual Report 2009
Notes to Consolidated Financial Statements as at and for the year ended 31 December 2009
26. Net fair value gains on assets at fair value through profit or loss
(in EUR) 2009 2008
Changes in fair value of financial assets
- held for trading 170,279 (24,317,453)
- initial recognition 22,063,796 (77,403,222)
22,234,075 (101,720,675)
Net fair value gains on financial assets at fair value through profit or loss
- held for trading 2,546,383 233,098
- initial recognition 2,574,316 55,064
5,120,699 288,162
Changes in fair value of derivatives (322,132) 6,319,371
Total 27,032,642 (95,113,142)
27. Operating loss before interests, tax, exchange differences and influence of associates
The Group incurred the operating loss of EUR 18,432,485 in 2009 (in 2008, the Group incurred the operating loss of EUR
49,859,388).
28. Finance costs
(in EUR) 2009 2008
Interest expense:
Bank borrowings (3,990,195) (5,743,009)
Bonds (3,956,773) (4,124,643)
Other (314,499) (298,067)
Net foreign exchange differences (1,302,447) 2,142,253
Total (9,563,914) (8,023,466)
29. Income tax expense
(in EUR) 2009 2008
Current tax (2,595,784) (2,934,092)
Deferred tax 9,795,691 11,219,991
Total 7,199,907 8,285,899
167
The Group KD Group Annual Report 2009
Notes to Consolidated Financial Statements as at and for the year ended 31 December 2009
The actual amount of income tax expense of the Group differs from the notional amount that would arise using the weighted
average tax rate applicable to profits of the consolidated companies as follows:
(in EUR) 2009 2008
Profit before tax (43,887,570) (77,217,976)
Tax calculated at domestic tax rates applicable to profits in the respective countries 9,745,306 18,793,634
Income not subject to tax 8,411,643 13,929,188
Non-deductible expenses (13,571,533) (19,987,207)
Utilisation of previously unrecognised tax losses 329,128 (237,893)
Tax losses for which no deferred tax assets were recognised 2,285,363 (4,211,823)
Tax charge 7,199,907 8,285,899
Effective tax rate 16.41% 10.73%
The applicable corporate income tax rates in Slovenia for 2009 and 2010 are 21% and 20%, respectively.
The tax authorities may at any time inspect the books and records within five years subsequent to the reported tax year, and
may impose additional tax assessments and penalties. Some of the subsidiaries have been the subject of tax inspection in
recent years, but the parent company has not been inspected by the tax authorities since its establishemtn in 2001. The
Group’s management is not aware of any circumstances which may give rise to a potential material liability in this respect.
30. Earnings per share
Basic earnings per share attributable to holders of ordinary shares of the controlling entity are calculated by dividing the profit
attributable to equity holders of the Group, (net profit of the majiortiy owners adjusted for the amount of preference dividends,
by the weighted average number of ordinary shares in issue during the year.
(in EUR) 2009 2008
Basic
Profit attributable to equity holders of the parent (44,246,799) (76,858,747)
Weighted average number of ordinary shares in issue 2,613,439 2,613,439
Basic and diluted earnings per share (EUR per share) (16.93) (29.41)
Earnings per share and restated earnings per share are equal.
31. Dividends per share
According to the decision of the General Meeting of Shareholders concerning profit distribution, no dividends were paid either
on preference shares or ordinary shareso. For the year 2009 the Board of Directors proposed no dividend payment.
32. Acquisitions and disposals of subsidiaries
32.1. Acquisition
In 2009, the Group acquired a more than 50% share in the following companies:
- FM-NET d.o.o., Ljubljana – 31 January 2009
- Radio Kranj d.o.o., Kranj – 31 January 2009
- World Life group Ltd., Limassol – 30 June 2009
- Vitavizia d.o.o., Ljubljana – 30 June 2009
- KD Financial point EOOD, Sofia – 1. January 2009
168
The Group KD Group Annual Report 2009
Notes to Consolidated Financial Statements as at and for the year ended 31 December 2009
- OOO Sarbon Invest, Taškent – 30 June 2009
Pursuant to the business combination with FM-NET d.o.o., World Life Group ltd., Vitavizia d.o.o., EOOD KD Financial point
Bulgaria and OOO Sarbon Invest, the Group recognised goodwill totalling EUR 4,814,498; in the other business combination
with Radio Kranj d.o.o., the Group recognised surplus in the amount of EUR 192,776.
If the above entities were included in the Group from 1 January 2009, the Group's revenues would be higher by EUR 188,541
resulting in a total loss of EUR 1,406,321.
Details of net assets acquired and excess on the acquisition are as follows:
(in EUR) 2009 2008
Purchase consideration:
– cash paid 4,534,146 37,500
– direct costs relating to the acquisition - -
Total purchase consideration 4,534,146 37,500
Fair value of net assets acquired (87,577) 153,708
Goodwill (Note 9) 4,814,498 127,058
Excess (Note 22.2) (192,776) (31,536)
The assets and liabilities arising from the acquisition are as follows:
(in EUR) Fair value Carrying value
Cash and cash equivalents 301.024 301.024
Property, plant and equipment 397.751 397.751
Investments in subsidiaries 535.376 535.376
Investments in associates 42.826 42.826
Financial assets 3.476.199 3.476.199
Loans and receivables 546.518 546.518
Other assets 3.201 2.994
Financial liabilities (4.826.716) (4.826.716)
Payables (1.559.556) (1.559.556)
Net assets (1.083.377) (1.083.584)
Non-controlling interests 339.520 339.520
Net assets acquired: (1.083.377) (1.083.377)
- in the previous years 278.819 278.819
- in the current year (231.067) (231.067)
Cash and cash equivalents in subsidiary acquired
- in previous years - -
- in the current year 4.534.146 4.534.146
Cash and cash equivalents in subsidiary acquired (301.024) (301.024)
Cash outflow on acquisition 4.233.122 4.233.122
169
The Group KD Group Annual Report 2009
Notes to Consolidated Financial Statements as at and for the year ended 31 December 2009
32.2. Disposal
In 2009, the Group concluded contracts with Assistance Coris d.o.o., KD Vifin s.r.o., KD Mont a.d., KD Life s.r.o. Czech, and
KD Investments a.s. Slovakia for disposal of share capital, realising loss on disposal of EUR 620,680.
The Group disposed of the share capital of the following companies in 2009:
Assistance Coris d.o.o., Ljubljana
KD Vifin s.r.o. Bratisava
KD Mont a.d., Podgorica
KD Life s.r.o. Prague
KD Investments a.s. Bratislava
Assets and liabilities at disposal:
(in EUR) Carrying value
Cash and cash equivalents 507,952
Property, plant and equipment 222,689
Financial assets 767,799
Loans and receivables 3,774,333
Other assets 147,962
Financial liabilities -
Payables (1,483,175)
Net assets 3,937,560
Goodwill -
Non-controlling interests 1,222,855
Cash and cash equivalents for disposal of net assets 2,094,025
Cash and cash equivalents in disposed companies (507,952)
Cash from company disposal 1,586,073
33. Related-party transactions
The Group is controlled by KD d. d., Ljubljana (incorporated in Slovenia), which owns 63.20% of the Group’s shares. The
remaining 36.80% of the shares are widely held.
The following transactions were carried out with related parties:
(in EUR) 2009 2008
Sales of goods and services
– Associates 937,532 1,697,212
– KD d. d. 45,847 18,018
– Other KD d. d. related parties - -
Total: 983,379 1,715,230
Goods and services are sold on the basis of the price lists in force for both related and unrelated parties.
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The Group KD Group Annual Report 2009
Notes to Consolidated Financial Statements as at and for the year ended 31 December 2009
(in EUR) 2009 2008
Purchases of goods and services
– Associates 750,030 784,814
– KD d. d. 5,600 18,666
– Other KD d. d. related parties 104,317 -
Total: 859,947 803,480
(in EUR) 2009 2008
Year-end balances arising from sales/purchases of goods/services
Receivables from related parties:
– Associates 18,729 832,353
– KD d. d. 7,565 2,033
– Other KD d. d. related parties - -
Total 26,294 834,384
Payables to related parties:
– Associates 70,790 76,549
– KD d. d. 3,517 18,902
– Other KD d. d. related parties 52,122 2,166
Total 126,429 97,617
(in EUR) 2009 2008
Key management personnel remuneration
Members of Board of Directors – salaries (gross), bonuses 3,125,144 3,126,288
Supervisory Board – remuneration 200,813 442,632
Salaries for employees with individual employment contracts 8,170,875 10,815,498
Total 11,496,832 14,384,418
The Group had received guarantees from members of Board of Directors, the Supervisory Board and employees with
individual contracts in the amount of EUR 5,333,333 as at 31 December 2009 (in 2008: EUR 16,934,049).
(in EUR) 2009 2008
Loans to members of Board of Directors, the Supervisory Board and employees
Loans to the members of Board of Directors - 12,241
Loans to the Supervisory Board - 2,064,713
Loans to employees 70,476 70,474
Total 70,476 2,147,428
(in EUR) 2009 2008
Loans and deposits to associates
Beginning of the year 2,143,779 1,141,589
Loans advanced during the year 146,649 5,270,000
Loan repayments received (1,900,104) (4,268,000)
Interest charged 24,828 31,785
Interest received (24,832) (31,595)
Total 390,320 2,143,779
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The Group KD Group Annual Report 2009
Notes to Consolidated Financial Statements as at and for the year ended 31 December 2009
(in EUR) 2009 2008
Loans to KD d. d.
Beginning of the year 14,038,840 10,728,111
Loans advanced during the year 6,978,057 14,712,870
Loan repayments received (6,610,994) (11,533,545)
Interest charged 595,178 491,650
Interest received (380,612) (360,246)
End of the year 14,620,469 14,038,840
(in EUR) 2009 2008
Borrowings and deposits from associates - -
Beginning of the year - -
Borrowings received during the year - -
Borrowings repayments - -
Interest charged - -
Interest paid - -
Total - -
For loans approved to associates in 2009 and 2008, the Group charged no costs associated with the approval process.
(in EUR) 2009 2008
Other related-party transactions
Beginning of the year 34.968.796 10.760.414
Loans advanced during the year 2.848.735 32.699.823
Loan repayments received (13.739.073) (9.514.924)
Impairment (4.468.763) -
Interest accrued 1.416.372 1.023.482
Total 21.026.067 34.968.796
Loans are collateralised by the securities received as collateral and establishing usufruct of securities in the amount of EUR
14,125,337 (EUR 2008:12.576.276).
Interest rate for loans range from 3M EURIBOR+ 1.75% to 9%.
34. Events after the balance sheet date
The Supervisory Board of KD Life Življenje d.d. at its meeting on 1 March 2010, adopted the proposal to convene the General
Meeting of Shareholders and replace a member of the Supervisory Board. Mr. Sergej Racman, member and Deputy
Chairman of the Supervisory Board, will be replaced by Draško Veselinovič, PhD. At the same meeting the Supervisory
Board also gave its consent to the company´s business plan for the financial year 2010.
Following the review of operations of KD Življenje d. d. which by the Insurance Supervision Agency (the Agency) in 2007, an
Order for the elimination of violation No. 40105-381/08-27 dated 14 April 2008 was issued to KD Življenje stating that the
company did not set aside insurance technical provisions for minimum guaranteed payments on life insurance with DPF of
Asia Garant and Asia Garant plus, which should have been done in accordance with the Insurance Act. Since KD Življenje
submitted an incomplete report on
the elimination of violations, the Agency issued another Order No. 40105-789/08-27 of 19 June 2008 for updated report.
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The Group KD Group Annual Report 2009
Notes to Consolidated Financial Statements as at and for the year ended 31 December 2009
Following the annulment of the above Order for updated report, the Agency issued a new Order for updated report No..
40105-2559/08-27 of 17 December 2008, which is, based on the legal action brought by the insurance company on 5 January
2010, again under judicial review. The lawsuit is currently in progress. Since instituting proceedings against the Order for
updated report and the Decision of the Agency No. 40109-221/09-27 of 11 February 2009, by which the Agency decided on
objection to the Order for the updated report does not stay the execution thereof, the insurance company on 26 January 2010
reconciled insurance technical provisions and investments in accordance with the Order for updated report and the Decision.
As at 31 January 2010 the insurance company formed insurance technical provisions for guaranteed minimum payment of
endowment on the life insurance assets covering mathematical provisions in the amount of EUR 6,127,227. The difference to
the full amount of insurance technical provisions arising from the value of units in structured debt securities of Asia Garant
and Asia Garant + was recognised within unit-linked assets in the amount of EUR 305,014.
On 20 January 2010 legal action was brought to the court against the Decision of the Ministry of Finance, Directorate for the
System of Tax, Customs and Other Public Revenues, Division for Administrative Procedure at II. Degree in Tax and Customs
Matters No. DT-499-02-32/2007 of 10 December 2009, rejecting the company's appeal against first instance decision of the
Ministry of Finance, Tax Administration of the Republic of Slovenia, the Special Tax Office, No. DT 0610-11/2007 0203 10 of
19 June 2007. Taxes and fees the payment of which was required in the said decision were paid already in 2007.
On 12 January 2010 at the time when the preparation of these financial statements was drawing to its end, the inspectors of
the Tax Administration of the Republic of Slovenia began the examination of the corporate income tax for the year 2008. The
tax inspection is expected take three months; hence by the time the annual report and accounts for 2009 drawn up by the
reporting entity were completed, no decision has been issued by the tax authorities.
On 10 February 2010, the Supervisory Board of Adriatic Slovenica deliberating on the basis of the notice given by Mr. Marko
Rems resigning his position of a member of the Management Board dated 25 November 2009 relieved him of his duty. Until
the appointment of a new member of the Management Board, the insurance company Adriatic Slovenicaa will be run by the
two-memebr Management Board composed of two members.
On 19 March 2010, a report about the measures taken to remedy the infringement specified in the decision issued by the
Insurance Supervision Agency was sent to the Slovenian supervisory authority. By the time of the publication of this Annual
Report for 2009, the insurance company has not received any feedback.
The following companies are in the process of winding up:
KD Asset Management b.v., the Netherlands
KD Investment Belgrade
KD Private Equity Belgrade
KD Securities EAD Sofia, Bulgaria
R.E.Invest d.o.o., Slovenia
The companies SC KD Fond de Pensii s.a., Romania and KD Capital Management, Romania are currently in the process of
being sold.
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